When A Loan is Right or Wrong

There is a lot of controversy around borrowing money and loans. Lots of financial gurus have gone back and forth. Thought leaders like Dave Ramsey preach that you should never incur debt if you can possibly help it.  Guru’s like Doug Hopkins talk about the importance of using other people’s money to further your goals and move the needle for you.

What is it

It really is a pretty simple concept. You borrow an amount of money at a fixed interested rate over a defined amount of time. You then pay a fixed payment every month until the loan is paid off. To qualify for a loan there are a few factors that go into it when a lender is deciding to give you money. This includes having excellent credit, proof of ability to repay, a low debt-to-income ratio and also possibly a co-signer.

Predatory loans

There are a few signs to be aware of when you are applying for a loan. There are a lots of high quality personal loans that can make a big difference for you. There is also a certain brand of loan called predatory loans. They are designed to not be able to pay back and trap the borrower into owing much more money than they can pay. There are a few warning signs to watch out for.

-       Extreme fees- usually the lender gets a fee for pushing the loan through, this is typically around 3 or 4 percent. If you come upon a loan where they want 10 or 15% fee, that is a sure red flag to watch out for

-       Penalties for good behavior- even in the prison system people are afforded benefits for good behavior. The idea is to pay back the loan right. Some loans with have a prepayment penalty which means that you incur a steep fee for paying the loan early or ahead. This is a dangerous sign.

Promising to fix problems with future refinances- predatory lenders are well known for selling rotten deals with the reassurance that when they refinance later. If the loan doesn’t work for you now then it won’t in the future and just don’t do it

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Created on Apr 23rd 2020 13:39. Viewed 718 times.

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