Before You Borrow
THE BEST DECISION we can make as good stewards of God's money is to never owe money. But there may be cases where there's no other way out, and securing a bank loan in certain cases may be our last resort. Circumstances may force us to forfeit the decision not to borrow. However, borrowing should always be done with discretion, looking toward the time when it is no longer necessary.
Proverbs 22:7 tells us, "The rich ruleth over the poor, and the borrower is servant to the lender."
Things to Consider before Borrowing
Whay are we planning to borrow? Is it for something that's not necessary? Do I have the ability to repay? We need to be careful before we launch into any venture that will consume our future earnings. If you're having money problems, consider these options before you put your future on the loan line.
If your problem is bills, bills, and more bills, talk with your creditors or with representatives of non-profit or other reputable credit or budget counseling organizations to work out a plan that reduces your bill payments to a more manageable level.
Contact your local social service agency, church, and local or state housing agencies. They may have programs that help you, including the elderly and those with disabilities, with energy bills, home repairs, or other emergency needs.
Talk with someone other than the lender or broker offering the loan who is knowledgeable and you trust before making any decisions. Remember, if you decide to get a home equity loan and can't make the payments, the lender could foreclose and you would your home.
If You Must Borrow
If you decide a loan is your only option, talk with several lenders, including at least one bank, savings and loan, or credit union in your community. Their loans may cost less than loans from finance companies. Ask friends and family for recommendations of lenders. And don't assume that if you're on a fixed income or have credit problems, you won't qualify for a loan from a bank, savings and loan, or credit union.
Consider Interest Rates and Payments
What are the monthly payments? Ask yourself if you can afford them.
What is the annual percentage rate (APR) on the loan? The APR is the cost of credit, expressed as a yearly rate. You can use the APR to compare one loan with another.
Will the interest rate change during the life of the loan? If so, when, how often, and by how much?
What is the penalty for late or missed payments?
What is the penalty if you pay off or refinance the loan early?
It's always important to take into account both fees and interest rate, because the loan with the lowest interest rate may not be the best deal.
Do Your Homework
Get a blank copy of the forms you'll be asked to sign at closing, when the loan is final. Study them. If you don't understand something, ask for an explanation. You should still talk with other lenders to make sure you get the best deal. Ask lenders to explain the best loan plans they have for you.
Before You Sign
Have a knowledgeable friend, relative, or attorney, review the loan papers before you sign the loan contract. Be sure the terms are the same ones you agreed to.
Make sure all promises, oral and otherwise, are put in writing. It's only what's in writing that counts.
And ask for an explanation of any dollar amount or term you don't understand. Don't let anyone rush you into signing the loan contract. Always think twice before you sign.
You Have Rights under the Law
You have three business days to cancel the loan. If you're using your home as security for a home equity loan (or for a second mortgage loan or a line of credit), federal law gives you three business days after signing the loan papers to cancel the deal without penalty. You must cancel in writing. The lender must return any money you have paid to date.
For further reading:
• Debt Consolidation Fraud and Scams
Turning to a company that offers help with debt problems may seem like a good solution, but be careful of ads that offer quick fixes on debt relief.
• Loan and Debt Consolidation
With more and more Americans in financial trouble, financial institutions are offering debt consolidation loans as a way out, but are these a good idea?