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.

Now, I’m sure many of you may have heard the terms “good debt” versus “bad debt”, and while you may know these terms, do we truly understand them? In fact, many persons justify their spending habits by using these two terms loosely and find themselves in debt that they’re unable to pay off and have far exceeded their income.

So what is good and bad debt?

Good Debt: Students and homeowners are the typical consumers of good debt when they borrow money for school/tuition fees and mortgages. These types of debt will help them to increase their future earnings or enable them to earn more to service their other debt.

Bad Debt: This is simply a kind of debt that is used to purchase items that do not enhance or potentially enhance one’s income. Such items include clothing, a motor vehicle (that will not be used for income generating purposes) and vacation trips.

So, should I borrow to pay my debt?

In today’s environment, there are several options which persons can utilize to assist in the process of paying off their debts. If one’s debt is unmanageable, meaning it far exceeds one’s income and I impacting greatly on one’s standard of living; then one should look at the various options offered by lending institutions. However, it must be noted that borrowing costs money and the longer you owe money, the more it costs. Some of the options to be considered are:

Debt Consolidation: This is an option that persons can consider if there are several debts. This will allow them to combine these debts to arrive at a single more flexible and/or lower monthly payment, and in some cases this option carries a lower rate of interest, and if repaid as scheduled, may work out to be the best option. It should be noted however, and must be clearly understood, that all loans are now merged; hence one must be more prudent and follow carefully the repayment plan as, if not careful, one can lose everything, if payments are not made.

Overdrafts: Commercial banks typically offer a specially arranged facility where you can have a limit up to which you can borrow from your current account. There is no minimum repayment and therefore, you can take the money up to the overdraft limit using any withdrawal method. Please note though that interest rates are generally higher than those for personal loans, and this method is not the ideal as it requires a monthly or quarterly fluctuation of the amount of the overdraft limit.

Borrowing from family & friends: This option, while not usually advisable, as it can open a “can of worms”, may be considered one of the best options, as in most cases they usually don’t have interest rates or fixed payments tied to them. If this option is available then it is advisable to take advantage of this assistance from family and friends who are willing to help in the process. Make sure however, to make payments promptly as if you’re paying back to a lending institution, as not doing so hurts your credibility for future advances.

Overall, it is usually not advisable to borrow money to pay your debt. This is like “borrowing from Peter to pay Paul”. However, if you’re experiencing difficulties making your payments, please visit your bank to discuss with them an affordable option. Be sure to give them a view of the entire situation (be honest about your financial status). If possible, your banker may propose other options that may assist you in the process.

If considering another loan, remember that payments have to be made on this loan too and if you’re not managing your existing loan, it is best not to take that route. Try to find ways to reduce your costs by cutting back on unnecessary spending habits that will impact your overall ability to maintain your financial well-being.

Make some sacrifices and eventually you will be rewarded. With proper management your debt will disappear.

It helps to decide on the things that you need to be done. A loan may be the solution to your financial problems but before you decide to take a loan consider the following tips:

We sometimes become overwhelmed with joy when we get our loan approved and sign our agreement to an interest rate percentage that we cannot afford to repay. It is very important that you read the “fine print” and understand the terms outlined in the contract. If you do not understand what is being said do not sign. If there are things that you do not agree with you can ask for the contract to be amended to suit your interest as well as that of the lending agency. If they refuse to amend the contract then try to get a loan elsewhere. If you have a lawyer then it would be a good idea to ask him/her to go over the contract with you.

Ensure that the loan that you take protects you as much as possible. Know what the fees and costs of the loan covers. If it includes life, disability, property insurance or any products that you don’t want or understand then this protects the lender and not you.

It is tempting to put false statements on documents at times if we think that it will make the process easier or quicker but this could cause serious problems. Do not allow yourself to be coerced into falsifying information on important documents especially ones that relate to financial issues. Make sure that all documents are complete, truthful and have the correct dates.

Write down the areas of interest that you want to query. You will need to understand monthly payments, interests and any other extra costs. Compare the costs of each lending agency especially for monthly payments.

Remember, you have a legal right to have everything in writing. Ask questions until you understand everything. You do not want to spend the time worrying about how you are going to repay your loan. Think smart … plan wisely.

Ways to use equity loans are as follows:

Home Improvements: Making upgrades and repairs to a house can make the home safer, more energy-efficient, more comfortable, better looking or a combination of all those things. It can increase your home’s value. This is an efficient use of equity debt – deploying it in such a way as to make the house more valuable. If you want to spend equity money to prepare the house for sale, make sure you apply for the loan before putting the home on the market. After you officially put your house up for sale, you will have trouble finding a lender willing to extend the loan.

Debt Consolidation: Many people rack up a lot of credit card debt and turn to home equity to ease the burden by using their equity to consolidate the debt. Doing this can reduce monthly interest charges because credit card interest rates often are more than 10 percentage points higher than rates on home equity loans and credit lines.

There is a dark side to using equity to consolidate other debts. You might be tempted to run up the credit-card balances again, leaving you with a big debt and no equity. It might be best to cut all but one or two cards, stop carrying them with you and use cash more often.

Education: Sometimes, the easiest way to pay tuition and fees for the kids’ private school or for college or technical school is to turn to home equity. This is especially true for families whose incomes are too high to qualify for grants or student loans.

Medical Expenses, Unemployment, Big-Ticket Purchases: An equity loan can be a godsend if you are hit with thousands of dollars in medical bills or you lose your job. Tax advantages and lower interest rates also make equity loans an option when financing a car, motorcycle or some other high-priced purchase. Many a homeowner even use equity in the primary home to make a down payment (or the entire purchase price) on a vacation home.

There are two main types of loans available to borrowers. The first is the unsecured loan. This is simply a loan, repaid each month with added interest, which is usually fixed. You will not be required to offer security such as your home, car or land to acquire this type of loan. However, if you default on the loan, the lender will take you to court to receive redress. Institutions may not choose to give unsecured loans to first-time borrowers or to a customer with whom they have had no previous business.

The second type is a secured loan. You must offer security for acquiring this type of loan and, if you default, you will lose whatever asset you offered as security.

Understand the terms
Before acquiring a loan, ensure that you understand the terms and conditions of the loan. Be specific about repayment dates and interest rates. Ask questions about penalties for early and late repayment. Be realistic when choosing to borrow. Never borrow amounts that you will have difficulty repaying each month and never apply for more than one loan at a time, especially if the amounts are large. If you can afford to pay more than required each month, then do so. This way, you will pay far less interest.

Be prepared
If you should lose your source of income, you will still have to make repayments. Consider taking out an insurance policy to make repayments for you if you have to forfeit. Also, make the lender aware that you have encountered unforeseen misfortunes that will cause you to forfeit. The institution may have a policy to lower monthly payments until you have additional income.

Take loans only when absolutely necessary. Loans are not free money and should never be considered as such. Bear in mind when you take a loan that you have to make repayments plus interest. Be responsible enough to make payments on time. Sometimes loans are the easier way out of a situation, but not necessarily the best.

Over the years, a number of financial institutions have developed loan packages for this time of year. One of these loans may be the answer to your Christmas prayers. Speak to your local financial institution to find out what they have to offer.

If your financial institution does not offer this particular facility, it does not mean you have to look at your bland walls until next year. There are small lenders who have these types of loans in place. Of course, with small lenders, you may not get as large an amount as you would from a commercial bank.

Do not abandon caution in your pursuit of those new bathroom fixtures.

Careful attention must be paid to the loan agreement. While you may need a sizable amount, do not take more than you can afford to pay for. In addition, read the fine print, and ensure you fully understand what your repayment requirements are, what the rate of interest is, and how it is calculated.

As with any purchase you make, shop around for the best deal. The first offer may not always be the best. Negotiate for the best possible interest rate that you can get. What is presented to you may not be the final offer, so feel free to ask questions to find out if you can get better terms.

Not only should you shop smart, but also borrow smart.

Create a budget that will cover all expenses that this will incur against your other monthly expenses. This will give you an idea of the cash that you will need to work with. Remember to plan for things that you would not usually budget for such as dinner party and gifts. If you are planning to upgrade to a new vehicle or interested in treating yourself to your first vehicle then you have serious budget issues to contend with. All these expenses are brewing and some of you may be wondering exactly how it is that you are going to make what you planned a reality. Securing a loan for the season has its advantages, especially if you start the process of getting the loan approved early. It helps to decide on the things that you need to be done.

A loan may be the solution to your financial problems but before you decide to take the loan consider the following tips:

1. Read the ‘fine print’ and understand the terms outlined in the loan contract.
2. Ensure that the loan that you take protects you as much as possible. Get a good understanding of what the fees and costs of the loan covers.
3. Never put false statements or false information on your loan application. Your documents should be complete, truthful and with the correct dates.
4. Look closely at any areas of interest or aspects of the loan that may cause concern.
5. Ask questions until you understand everything.

Good luck!