What to Look Out for When Incurring Debt

With any loan you should consider several factors, including the interest rate, additional fees, and down payment.

The interest rate is the amount you are charged when you borrow money. When money is borrowed, you must repay the principal amount (the Rands amount you borrow), and the interest that accrues during the life of the loan. The higher the interest rate, the more you will pay. Interest rates may be fixed or variable.

• Fixed interest rates will remain the same throughout the term of the loan.
• Variable interest rates will periodically adjust as a result of current market conditions.

For some loans, additional fees may be charged. For example, some loans have closing costs. Vehicle financing loans may include additional insurance or warranty costs. Student loans may have origination and/or default fees. Prior to accepting a loan, make sure you understand the payment requirements and all the fees associated with the loan. It is important to know exactly how much you will be expected to pay.

Down payments are large payment amounts paid toward your purchase. Down payments minimize the amount you have to borrow. The more money paid upfront toward the purchase, the more money you will save over the life of the loan. For most large purchases, it is recommended that you pay at least 20% as a down payment.

Your monthly payment must fit into your budget. The new monthly payment must not cause your expenses to exceed your income.