Best Long-Term Loans Follow Simple Rules for Lending
Business Insider's Tanza Loudenback wrote a fascinating article in late October (2016) detailing what she called the '6 rules for loaning money to a family member'. They are great rules that everyone should follow when lending money. It turns out that the best long-term loans from banks and building societies are made using very similar rules.
The rules are in place to protect both borrower and lender in the event something goes wrong. As a lender, you would want to protect yourself and your financial interests in the event the borrower defaults. As a borrower, you would want to make sure that you were not taken advantage of by the lender. It's all straightforward stuff that makes a lot of sense when you stop and think about it.
If you are just beginning the process of comparing the best long-term loans you can get by using the equity in your home as collateral, keep in mind that five of the six rules listed by Loudenback in her article apply.
Everything Goes in Writing
Any lender willing to offer you a loan is going to present you with documents requiring your signature. These documents represent a legal contract between you and the lender. They are written down for everyone's protection. It is your job to read them thoroughly and make sure you understand them before signing. If you don't know what you're signing, either ask the lender questions or seek the advice of a solicitor.
Agree on Interest Rate
Private lenders have to agree on interest rates with their borrowers so that everyone understands how much will be repaid. Commercial loans are no different. You will have to agree on an interest rate with your lender before any contracts will be finalised. But here's the thing: you don't have to settle for just any interest rate. You can try negotiating with your lender of choice. If you cannot get what you want, you can always go to another lender willing to offer a better rate.
Be Prepared for Default
Lenders and borrowers both have to be prepared for the possibility of default. Hopefully, this does not happen in your case, but you need to be aware of the consequences if it did happen. Any loan taken out against the equity in your property would subject your home to repossession and possible sale if you cannot make your payments.
Borrowing Establishes a Business Relationship
Whether you borrow from a family member or a bank, agreeing to a loan instantly establishes a business relationship governed by additional rules and regulations. Your bank or building society is not your friend, nor do they ever intend to be so. They are loaning you money with the expectation of making a profit as a result of this business relationship, and they're unlikely to let anything get in the way of that profit.
The Answer May Be 'No'
Lastly, every opportunity to loan may not be a good opportunity from the lender's standpoint. Loudenback recommends that family members should be willing to say 'no' if another family member looking to borrow cannot be relied on. The same holds true for banks and building societies. They do a thorough credit check and income verification on every loan applicant. Sometimes they must say 'no' because a borrower presents too much of a risk.
If your lender tells you 'no', don't simply apply for a new loan with another lender. Instead, find out why you were rejected so you can fix the problem. Otherwise, the best long-term loans in the market will not be of any use to you.
Business Insider â?? http://www.businessinsider.com/rules-for-loaning-money-to-family-2016-10?r=UK&IR=T
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