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When you apply for
a loan, you should be certain of three things—how much you need
to borrow, how you will pay off the loan with interest, and how
long you will take to pay off the loan.
The amount you need to borrow will vary, depending
on what you need the loan for. Are you taking a loan to buy a house
or a car? Or are you borrowing money to pay for your education,
somebody’s medical treatment, a personal computer, a family function,
or a vacation?
The amount you need to borrow will vary with your
needs, as will the time required to pay off the loan. For example,
if you take a loan to buy a personal computer or go on a vacation,
you may only require a few thousand dollars, which you can easily
pay off over a year or two. On the other hand, taking a loan to
buy a house could mean that you spend the next ten to thirty years
paying off the loan, which could run into a few hundred thousand
to a few million dollars, depending on where you want to live and
the home you want to buy.
The amount you can borrow also depends upon your
ability to pay off the loan. For instance, it may be easier getting
a student loan if you live with your parents, who own their home.
The fact that your parents own their home tells bankers that you
come from a family that pays their bills on time, even if you personally
are employed only on a part-time basis. You can only begin to pay
off your loans once you begin work full-time, which is when you
need to make a budget listing your income and expenses, and work
out how to pay off all those student loans.
Bankers prefer to lend money to
people who are employed and own property, because they know that
such people will pay their bills on time. They are a little nervous
when lending money to people who have just graduated, are self-employed,
or own no property, since such people usually have little or no
credit history—it is not known whether or not these people will
pay off their loans on time. Most banks are extremely reluctant
to lend money to people who have already experienced a bankruptcy,
foreclosure, or non-payment of tax case, because a legal record
exists that proves that these people do not pay on time.
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