Evaluating Bank Loans

You're tired of rent and landlords and kitchens only slightly bigger than a closet. Driving through town one day, you pass your dream house and notice a for-sale sign! And the anxiety begins. You have a little money saved up, but you know it's not nearly enough to buy a house with. You, my friend, are now in the market for a loan. You make up your mind to call your bank for information the moment you get home, but on the way there, you hear ten different commercials about bank loans, and they all sound oh so confusing.

Bank loans come in all amounts, lengths, and interest rates, and the loans your bank suggests may not be the best option for you. Before signing anything, play the field a bit; visit other banks and see what they have to offer. Chances are good that you'll find something better suited to your situation than the first loan offered. Here are some questions to ask:

• What's the interest rate? Since loan advertising generally focuses on interest rates, you probably know a lot about those already. Lower interest rates are generally better for you, since they mean that you'll be paying less money in the long run, but that doesn't necessarily mean that the lowest interest rate makes for the best loan.
• Will that rate stay the same? Most loans don't keep the same interest rate through their entire existence. Depending on the type of loan you get, your interest rate may go up or down with the market price, or it may be renegotiable after the first few years at the initial rate.
• What are the monthly payments? If, for example, a loan has a very low interest rate but monthly payments that will make you starve yourself...well, I suppose if food doesn't mean much to you that might not be bad. For the most people, though, a good loan can't break the budget with its monthly payment
• How soon will I have it paid off? The larger the loan, the longer it will take you to pay it off. The standard life of a mortgage loan is about thirty years, but depending on your circumstances you may prefer a five, ten, or fifteen year loan. Also, check to see if your loan agreement has penalties for paying off your loan ahead of schedule