Introduction
Applying for bank loans is not something that any person does everyday or wants to do daily. Banks are seen as evil institutions because they take so much money with prohibitive interest rates and additional costs. In addition, there are many banking terms that are difficult to understand for the average individual. However, there are instances when we have no choice but to go to these financial institutions and borrow money to pay for purchases, usually big ones such as a house, a car, or tuition fees for a college education.
Step 1
Shop around and look at bank loans being offered. Nothing is free. Getting bank loans comes with many costs from processing fees to monthly payments. Compare prices and make sure that you know what you’re getting into by studying bank loans offers.
Step 2
Check the interest rates. Interest rates are really what kill a borrower, to phrase it vividly. In addition to the principal, interest rates depend on the prevailing market rates which can be high or low. Although a low interest rate is conducive for bank loans (inviting more borrowers), if you look at the interest rates you’ll be paying over the life of the loan, they are still huge amounts and often exceed original bank loans by 200 to 300%.
Step 3
Find ways to shorten life of bank loans. That said, a better alternative is to shorten the repayment period or cut the life of the loan. Thus, instead of paying back what you borrowed for 10 years, think of making it to 5 or 3.5 years. Of course it depends on the amounts you are borrowing. If it is to pay for a house, realistic payment periods are somewhere from 20 to 25 years. Just remember that every monthly payment carries an interest that you pay on top of the principal.
Step 4
Read the fine print. Note that early repayment or paying the full amount of bank loans before the debt expires can also incur penalties.
Step 5
Understand bank loans packages. The loan principal and interest rates are the main components of a loan. However, you should thoroughly comprehend that there are different types of interest rates; fixed and variable. Depending on the rate that you opt for when you secure the loan, banks differ in their policies when each of these rates is applied.
Step 6
Get better loan conditions. Bank loans are given with different conditions and rates. Make sure that you are not being shortchanged by taking up credit with the first broker or lender you come in contact with. This is why shopping for the best packages is vital.
Step 7
Plan your financing. Not everyone can afford to pay a loan so fast unless you are earning so much in a month, in which case, you are not likely to go for bank loans if you have enough cash. However, freeing yourself up from debt quicker is also a matter of correct financial planning. If you are a meticulous bookkeeper, you’ll know exactly how much you need to live decently in a month such as groceries expenses, utilities expenditures, insurance, gas money and so on. Add you banks loans payments to give an overall picture of your finances. Build contingencies for emergencies such as an unexpected house repair or surgery.
Step 8
Get a professional opinion. Discussing the implications of bank loans on your finances with a professional adviser can save you a lot of heartaches. If you don’t understand many of the nuances of bank loans, get a trusted opinion, even if you have to pay something. It’s a small price to pay considering that a bad move on your part can ruin you financially.
Tips
Online shopping for bank loans is one of the easiest ways to compare prices. Request quotes and do an initial analysis of the situation before consulting a financial adviser.
Sources and Citations
Federalreserve.gov
