Ever make a major purchase and only remember the questions you should have asked after the purchase? When deciding which loan to take out you should ask the good questions before signing on the dotted line and  following provides a general guideline of some of those important questions.   

 How much will the monthly payments be and when are they due ?

Have a budget so you will not only know the total of your monthly expenses but also when in the month they need to be paid.

Is this a closed-end or revolving loan?

A closed-end loan provides for a lump sum of money which will be paid off over an agreed period of time. A revolving is more flexible and you will have options borrowing additional funds up to an agreed credit limit.

Is the interest rate of the loan fixed or variable?

A fixed interest rate means that your interest rate won’t change over the period of the loan which means you know what your future payments will be. A Variable interest rate will move up or down and will normally be tied to an interest rate index. In this case you should ask what the limits are

Can my payments change?

If you have a fixed interest rate and term, your payment will not increase during the term of the loan as long as you make payments on time. With a variable rate loan, payments can change based on the interest rate index.

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  When will my loan be paid off?

Assuming all the payments are made in full and on time. This is important to know with respect to your financial goals.

What is the annual percentage rate (APR)?

The annual percentage rate is the actual interest rate you pay on your loan, it includes the cost of obtaining credit and provides a good comparison when shopping for the lowest rate.  

Beyond interest rate, what are the other costs involved?

You should be aware of any initial fees and any charges over the period of the loan.  

Is the loan unsecured or are you using your home or personal items such as your car to secure the loan?

Unsecured personal loans are not secured by your assets, such as your home, or personal property and will typically have a higher interest rate. Secured loans will require you to provide your personal assets as collateral and will have a lower interest rate.

Does the loan have a prepayment penalty fee?

A prepayment penalty fee is charged for paying off a loan early. In some cases lenders will offer an option of lower interest rates if you agree to a prepayment fee or a higher interest rate without a prepayment fee.

Are there other products you’re paying for in addition to the loan, such as optional credit insurance?

Additional products, such as credit insurance, may be important to you but you should be aware of the cost and exactly what risk is being covered.