When you take a loan, you’re making a financial commitment. And in this commitment, you’re supposed to pay the principal plus interest chargeable within set deadlines. Since you don’t want to guess whether you can pay the debt or not, it’s essential to assess certain factors before making your borrowing decisions. Below are some of the key questions you must ask yourself first:
Is the loan secured?
The best thing about a secured loan is that the interest payable is usually lower than an unsecured loan. However, failure to pay back such a debt gives your FHA 203k loan program provider or any other lender the right to take up your security to make up for the loss. This could be your car, house, land, etc.
What are the penalties for noncompliance?
Some banks will charge you extra fees if you pay off the whole loan early. Others will charge more when you skip a payment period or finish the payment past the required deadlines. As a result, you end up paying much more than you ought to. This is why a clear understanding of the contract and the terms and conditions is vital.
How long will the debt payment take?
Some lenders are out there to make as much cash as they can. This is why they will want to set dates that will give them a substantial amount of interest that will see them realize lucrative profits come to the end of the financial year. And the longer you take to fully pay back your loan, the higher the interest fees. As a result, you need to know not only the loan repayment period, but also if the early payoff is allowed.
Otherwise, you only need to borrow if you can afford to pay off fully and on time. One of the best ways to know this is by drafting a budget that weighs your gross income against monthly expenses. If you happen to spare sufficient cash after deducting your monthly bills, it means you have the necessary financial muscle to borrow.