Lost your password?
  • narrow screen resolution
  • wide screen resolution
  • fluid screen resolution
  • Increase font size
  • Default font size
  • Decrease font size
  • style1 color
  • style2 color
  • style3 color
Costs of Borrowing

The main cost associated with a loan is the interest charged for the use of the money. This is usually calculated as a percentage of the total loan amount and you typically pay it in monthly installments as part of your loan payment. In addition, many lenders also charge administrative fees which you usually pay once, when you take the loan. Interest and fees are charges that you pay directly to the lender. These ―direct costs are usually cash payments.

However, there are other expenses associated with borrowing that may not be so obvious. Sometimes applying for and taking a loan forces you to spend money for transportation to attend meetings or go to the bank to fill out application forms. These activities may take you away from your business, forcing you to close it or hire someone to ―mind the store while you are away.

Although these additional ―indirect costs may not be part of the cash loan payment, they are real and should be considered when choosing a lender

Choosing a Lender

The cost of a loan will vary depending on the type of loan you seek and the lender’s policies regarding interest rates, fees, savings requirements, and collateral. Before you borrow, compare the costs of the loan you want among several lenders.

Choosing a lender is not only about costs. You might also want to consider the following:

  • Location: Is the lender close to your home or business?
  • Product offerings: Does the financial institution offer other types of loans or savings services that interest you?
  • Customer service: Do you feel comfortable there? Is the staff friendly and helpful?

 Questions to Ask a Lender

  • What types of loans are available?
  • What are the collateral requirements?
  • What are the savings requirements?
  • What is the interest rate?
  • What fees are charged?
  • What are the penalties for late payments?
  • How long does it take to get a loan?
  • How many times do you have to actually go to the loan office to complete the application?