There are many different types of loans available for those who need money to buy a car, a home or to consolidate their debt. However, not all loans come with the same interest rate or repayment terms. How can a consumer know that he or she is taking out a loan in a responsible manner?
The first thing to do is to determine the percentage of your income that will go toward repaying the loan. In the case of a home loan, it may take up 30 to 40 percent of the amount that you make before taxes. While this is not a cause for alarm, you don’t want other debt such as a car loan or your credit card debt to take up any more than 10 to 20 percent of your pay before taxes.
You should also take steps to make sure that your interest rate is a reasonable one. For an auto or home loan, those with good credit shouldn’t pay more than 4 to 5 percent. If you are being charged more, you should think about working with another lender or take steps to refinance the loan as soon as possible. To find out how much you will pay in interest, you can click on a repayment calculator that will give you an approximation of how much you will pay for the right to borrow money.