Everything you wanted to know about loans, but were afraid to ask

February 8, 2016
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Everything you wanted to know about loans, but were afraid to ask

Very few people can make it in this profession without some type of funding. But don’t despair! Before you sign on the dotted line for your first loan, we have some important tips for you to consider.

  • Fixed rate vs. variable rate: With a fixed interest rate, your payments will be the same every single month, so you will know how to plan your budget. With a variable rate, you may start off with low payments, but the interest rate may increase (or decrease!) over time, depending on market changes. If you’re in for the long haul, fixed rates might be the better option, since they remove the uncertainty of market fluctuations. If you’re planning on paying off your loans quickly, you might do better with a variable interest rate.
  • Secured vs. unsecured loans: For a secured loan, you pledge your assets to secure the loan. That means that if you can’t pay the loan back, you may be putting your other assets at risk. An unsecured loan does not put your assets at risk, but meeting the criteria for an unsecured loan can be difficult. Unsecured loans are available for student loans, so make sure that is what you are getting when you apply for your student loans. But if your application for an unsecured loan is not accepted, a secured loan is always another option.
  • Prepayment options: In the scenario of the variable interest rate above, we mentioned that you might want to pay off your loans quickly. Some people are uncomfortable with debt and want to reduce it, and you might find that you are one of those people. You also might want to pay off your student loans to make you a more viable candidate for other loans, such as a home mortgage, a professional business loan for an office, etc. Not all loans allow you to prepay, so if this is something you think you might want to do, make sure that your loans allow prepayment options.
  • Deferment and forbearance options: Some loans include an option to postpone payment under certain conditions. Just find out all the facts before you exercise this option, because your loans may still be accruing interest during the period of time that you are not making payments. There are lots of very specific rules about when you can and cannot postpone payments with deferment or forbearance, so make sure to find out the specific conditions that apply to you.
  • Loan consolidation: If you have more than one loan, you might want to consider combining all the loans into one larger loan so that you can make one monthly payment that will cover all your debt. You can find federal loan consolidation programs, and there are also private lenders who offer loan consolidation options.
  • If you have student loans and are willing to try a new location, make sure to consider a loan forgiveness program. Maybe you can reduce some of your debt without making any payments! The American Dental Education Association provides a summary of these programs at this link: http://www.adea.org/uploadedFiles/ADEA/Content_Conversion_Final/policy_advocacy/financing_dental_education/ADEA-Summary-of-Loan-Forgiveness-Programs.pdf.

As always, do your homework. Seek out the help of a tax adviser and an attorney. And remember what Rob Berger, a contributor to Forbes, said: “The best thing money can buy is financial freedom.”

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