Often times when we think about affordable borrowing, we think about interest rates. While this view is not incorrect, it is incomplete. There are three components to affordable borrowing, of which interest rates (the actual cost of capital) is primary.
When making a decision to apply for a loan, we sometimes pay little attention to fees. I would suggest though, that we start paying closer attention, especially now that we are living in an economic environment where the value of our dollar is constantly eroded. It is customary for the loan application process to attract an administration cost which is commonly referred to as commitment or service charges. This varies significantly from institution to institution and is usually required to be paid up front.
Another consideration when borrowing affordably is the cost of loan insurance. Have you thought what would happen to your loan if you die or if you become permanently disabled? In most cases, your beneficiaries or next of kin may have to take up this burden in the event of your passing. Loan insurance is available and is usually at a cost. At Credit Unions, however, this is free of cost to the borrower within a certain loan limit.
Borrowing wisely is just as important as investing wisely.
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