The first money that I ever borrowed was for a mortgage on my first home. As loans go, this was a relatively responsibly move to make; and the home certainly turned out to be an excellent investment. Mine was a good experience overall, and one from which I learned a lot. It wasn’t until long after I purchased the house (and took out the loan) that I realized just how blind I had been going through the process for the first time. What follows are a few lessons I learned, that I wish someone had first explained to me:
- The process is not quick. I had no idea what a long and involved process it is to apply for and close on a loan. I had a lot of help from family and a banker that we knew to help manage the situation, but it was still quite an ordeal. I’ve met a lot of people who seem to think that the loan process requires an afternoon of paperwork and a few days of waiting, but they couldn’t be more wrong. For neither my first loan, nor any loan since, has this been the case. If you want to borrow money, whether from a bank or a private lender, expect them to take their time and do their due diligence. They’re going to operate on their schedule, not yours.
- A loan doesn’t come cheap. There will be application fees, plus plenty of separate costs – in my case these included the costs of an appraisal and inspection of the property I was buying). Most lenders will also run a credit check, which you’ll pay for, and probably expect you to cover any additional third-party costs they incur in the process of reviewing or issuing your loan (this can include legal costs). It’s worth noting that these are just the direct costs – they don’t include the time that you may need to take off work for meeting with loan officers, gathering paperwork for items related to your loan directly (a loan application, personal financial form, or tax returns) or indirectly. In the case of a home loan you may need an appraisal, inspection, survey, or title search; but other loans can require any number of items including – in the case a business loan – a full business plan or feasibility study.
- Loan payments aren’t the only thing that determine affordability. This is biggest thing that I wish someone had told me before I took out my loan. There are always costs to consider aside from actual loan payments, and they can add up very quickly. When thinking about how much you can afford to borrow, or how much you can afford to pay for a house, these are items that really need to be considered. Taxes, insurance, maintenance on property, or other costs like association fees can easily equal the cost of the monthly loan payment. Sometimes lenders will even add them directly to your monthly payment, which can be daunting.
- The psychological impact is real. The last lesson that I learned from my first loan, which I really wish someone would have told me beforehand, is that a loan can be a real burden to shoulder. Moving beyond monthly payments or application fees, owing money can be a real weight psychologically. Some people are better at dealing with this issue than others, but I always felt like a loan was hanging over me. In short, I discovered that I had grossly discounted the value of the freedom that I had previously enjoyed by being debt-free. In addition to taking time to think about the affordability of a loan or the time it will take to approve and close, I would urge anyone to think very carefully about whether a loan is a burden they are willing to shoulder.
Yes, I used my first loan to make an investment, and it proved to be very rewarding financially. I’m sure we all think at one time or another about taking out a loan for an investment, hoping it will make us money. But taking out a loan, even unsecured loans, as I learned is also a lot of work and stressful – not just during the application process, but also once you’re making regular payments. Financially, borrowing can be extremely beneficial under the right circumstances, but people need to look critically at the process and their prospects. Only after they’ve considered everything involved should they decide that they want to take on such an obligation.
Sarah Porter is a money-savvy writer and mum of two based in Manchester, UK. She is the Brand and Marketing Manager at the UK loan website Oink Money (oinkmoney.com), as well as the founder of a well-known money-saving website. Sarah is originally from Edinburgh where she studied Business and later worked in finance for a FTSE 100 company. She left her career in finance to pursue her passion for writing, a move which allowed her to travel the world with her laptop while running her blog.
Sarah has been writing about money, debt and marketing for the last 6 years and has contributed to a number of prominent finance and marketing blogs with many of her market-leading money saving tips. When she's not working, she enjoys skiing, travelling and days out with the kids.