Questions to Ask Before You Take Out a Loan
Many people are skittish about borrowing money, especially if they’ve ever been in debt or have friends or family who have struggled with debt. There are good reasons to be cautious about loans, but there are many circumstances where the benefits outweigh the risks.
Auto loans, home equity loans, and personal loans can help you avoid dipping into your emergency fund or relying on high-interest credit cards to cover necessary expenses. A well-structured loan can give you more breathing room in your budget while preserving your long-term savings.
At Ouachita Valley FCU, we offer a range of loan options designed to meet specific needs, from auto and personal loans to home equity loans and home equity lines of credit (HELOCs). These types of loans often come with lower interest rates than unsecured credit cards or retail financing, especially when backed by collateral like your car or home.
Still, borrowing is a commitment. Before you apply, ask a few key questions to make sure you’re choosing the right loan for your situation and setting yourself up for success once repayment begins.
What Is the Total Cost of the Loan?
It’s easy to focus on the monthly payment, especially when you’re budgeting carefully. But low monthly payments can sometimes mask a higher cost over time. A longer loan term might reduce your monthly burden, but it may also increase the total interest you’ll pay.
Before you sign, ask for an estimate of the total cost of the loan, including interest and fees. You can also use loan calculators to see the differences for yourself before you commit.
If you’re looking at a personal loan or home equity loan, ask for an amortization schedule so you can see how your payments are applied to principal and interest over time.
Is the Interest Rate Fixed or Variable?
The type of interest rate you get affects how predictable your payments will be. With auto loans, personal loans, and most home equity loans, the rate is typically fixed, so your monthly payment stays the same throughout the life of the loan. With HELOCs, however, the rate is variable.
Ask your lender whether the rate is fixed or variable and how often it can adjust. If you’re considering an adjustable rate, ask what your payment would look like if rates rose by a few percentage points just so you’re prepared.
Are There Fees or Penalties I Should Know About?
Some loans come with additional costs beyond interest. It’s smart to ask upfront whether you’ll be charged:
Origination or application fees
Late payment fees
Annual fees (common on some HELOCs)
Prepayment penalties
At Ouachita Valley FCU, we’re transparent about our costs and fees, but every lender is different. Understanding the full picture can help you avoid surprises and compare loan options more accurately.
How Much Should I Realistically Borrow?
It’s not unusual to be approved for more than you need, especially with personal loans or home equity products. But just because a lender offers you a $15,000 personal loan or a $50,000 home equity loan doesn’t mean you should borrow that full amount. Be clear on the purpose of your loan and what you actually need to accomplish your goal.
What’s the Repayment Timeline and Can I Afford It Long Term?
Different loans come with different repayment structures. Ask your lender to walk you through the monthly payment timeline. Consider how your income, expenses, or other debt obligations might change over the life of the loan. Planning for the full repayment period, not just the first year, will help you avoid financial stress later on.
What’s the Purpose of the Loan and Is It the Right Loan Type?
Using the wrong loan for your needs can lead to higher interest costs or repayment terms that don’t match your goals. For example, some borrowers take out a personal loan to fund a kitchen remodel, even though a home equity loan could offer a lower rate and longer repayment period for that kind of expense. Others might use a HELOC to consolidate credit card debt but then continue drawing from the line for nonessential purchases.
The right loan depends not just on how much you need to borrow, but how you plan to repay it and whether the expense is one-time or ongoing.
Asking the Right Questions Upfront Can Help You Avoid Repayment Challenges
Borrowing doesn’t have to be complicated, and it definitely shouldn’t feel like a guessing game. The more questions you ask upfront, the more confident you’ll feel about your decision.
At Ouachita Valley FCU, we’re here to help you understand your options and find the loan that fits your goals, budget, and timeline. Whether you're planning a renovation, replacing your car, or covering a major life expense, our team can help you move forward with clarity and confidence. Call us at 318.387.4592 to speak with one of our lending professionals today.
