3 Important Facts to remember before signing a Loan

loan sign

Gaining approval for a loan can be exciting for a consumer who has experienced challenges. In fact, a consumer can be so overwhelmed by an approval that he or she may sign a loan agreement without considering all the aspects of it. The following are three important facts that a person must consider before signing a loan agreement:

Can the Person Pay the Debt?

The first thing that a prospective borrower must ask himself or herself before signing a contract for a loan is whether he or she can repay the advance. Answering that question requires the person to perform a calculation to estimate his or her disposable income. The disposable income is the money that one has left over after paying the monthly bills. An individual can arrive at that figure by subtracting total monthly bills from total monthly income. If the result leaves enough for a person to pay back the loan, then it is safe for that person to sign the contract.

The consumer should make sure that he or she has enough money left after paying the bills to eat a normal amount of food and pay for fuel in the car. The person should think twice before taking a loan if doing so will prevent circumstances from being ideal.

Is Collateral Involved?

Another element that the borrower should consider is whether collateral is involved and if that person is certain of having no difficulty repaying the advance. A title loan, for example, uses the person’s vehicle as collateral. The consumer should be certain that he or she is in a financial position that will allow the car to remain. Other loans use homes, stocks and bonds for collateral. A consumer should always be certain that he or she can stand to lose the collateral item.

What Are the Fees?

Finally, the fees are the most important element of a contract that one should consider. A loan contract may include interest, loan fees, processing fees, late payment fees and more. It is up to each consumer to review such fees and then decide whether they are fair enough for the consumer’s signature. Many states regulate certain lenders to avoid predatory lending practices, but some lenders still may try to slip through the cracks.

Consumers should explore at least three lenders before they land on one party to process their applications. A comparison tool is an excellent tool to use because it discloses facts about a potential lender that a consumer may want to know. A comparison tool will show the consumer the fees of several lenders in a horizontal or vertical fashion. The consumer can then choose the best option from those.