plan ahead for a loanPlanning should be an essential part of taking out a loan.

When you fail to plan you’ll often get stuck with horrible terms, a high interest rate, and you may not even qualify for a loan at all.

To increase your chances of getting the best possible deal and making sure you’re setting yourself up on solid financial footing, check out these tips.

Start Saving

The least amount of debt you take on the better. If you’re going to be making a big purchase, like a car or a home, make sure you can cover a significant portion of the cost with cash.

It’s tempting to take a loan for the whole amount of the purchase but if you do you’ll set yourself up to feel financially crunched and will have to spend thousands of extra dollars in interest.

Try to start saving at least a year in advance before making a large purchase. (You might need to save substantially longer for a mortgage!)

Know Your Credit Score

Your credit score is what will determine the interest rate you receive. If you have a low credit score you’ll pay hundreds or thousands of dollars more over the life of your loan than someone with good credit.

Having a bad credit score can also keep you from getting a loan. To keep your credit score high try the following:

  • Always pay your bills on time
  • Make sure your credit to debt ratio is low
  • Don’t apply for too much credit in a short timeframe
  • Check your credit score biannually to make sure there are no mistakes

If your credit score doesn’t improve by the time you’re ready to get a loan you can check out a place like Aspire Money that specializes in loans for low or no credit applicants.

Scout Out Deals

If you start saving a year in advance you’ll also have plenty of time to start scouting good deals. By paying close attention to the going rates of the asset you’re wanting to acquire, you’ll know how much you should pay when it comes time to make that purchase.

Conclusion

Taking out a loan should not be done on a whim. To set yourself up for financial success you need to take the time to make sure you have a well-executed plan. By doing this you’ll be able to get the most bang for your buck!

About Robert Farrington

Robert Farrington has written 77 articles on this site..

Robert Farrington is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances.

Tagged with →