Don’t Let Loan Illiteracy Hinder Your Lifestyle


Everyone has heard of math illiteracy but few people ever speak about a more pernicious problem among otherwise educated adults: loan illiteracy. A working definition of the term is the inability to compare loan types and terms for the purpose of determining which one is better for an individual’s particular circumstances. Do you have a nagging suspicion that, even though you’re good at math you still can’t assess the pros and cons of a given loan agreement? If so, it’s time to brush up on this essential ability.


There’s no shame in being a bit behind the curve on loan lingo, conditions, and the latest legal wrinkles within the fine print. Many working adults are unable to read a simple lending agreement and determine if the interest rate is fair, the term is too long or short, the penalties and fees are reasonable or unreasonable, and more.

What’s the remedy? It’s not difficult, painful, or expensive. In fact, it’s free, painless, and quite simple. If you want to cure an oncoming case of loan illiteracy, spend 10 minutes bringing yourself up to date on the latest legal and accounting aspects of how money is lent, borrowed, and repaid in the 2020s. A rash of legislation during the past decade has changed things enough that a refresher course is in order. Here are the highlights of what everyone should know about today’s lending market.

Begin with the Why

Before you borrow a dime, make a written list of reasons for doing so. Do you need a new car, home, boat, or camper? Are you aiming for a college degree and don’t have the savings to cover tuition? Do you need funds for a vacation, to pay unexpected medical bills, or something else? Whatever your situation, write a short paragraph about the exact reasons for needing to borrow money. Many people find that when they do this, they quickly realize they don’t actually need to take out a loan. In other cases, the need becomes clear and you can set your goals on specific plans of action.

For example, adults who want to obtain a college or graduate degree often assume they can’t afford to so. Then, when they write out their reasoning, it dawns on them that education is a way to uplift one’s financial life and have more job prospects. The next realization is that getting private student loans can mean financing 100 percent of your degree, getting a competitive interest rate, and not having to worry about early payment penalties, among other advantages. When you clarify the ‘why’ of your monetary needs, all sorts of facts come into focus.

Nail Down the Numbers

Borrowing is about precision. Not only must you know the why, you also need to comprehend the quantitative side of the equation, namely how much money you need to borrow for your project. Before heading into the marketplace, be crystal clear on both why and how much. Those two pieces of the puzzle will help you resolve most of the others in short order. Unfortunately, many who walk into car dealerships, real estate offices, and banks with no idea of exactly what amount of funding they need. Know your numbers and much else will fall into place.

Read the Fine Print

Every contract is different. Not only are there major categories of borrowing/lending, like those for homes, vehicles, schooling, vacations, medical bills, and personal needs, but there are dozens of different types of contracts to contend with in each of those fields. That’s why it’s imperative to take your time and read the fine print of a contract before you sign it. Even if you hate or don’t understand legalese, do it. When you come across terms you don’t understand, look them up. Pick your way through the document and mark any passages you don’t understand with a sticky note. Later, sit down with the lender and contend with all those queries. Later on, you’ll thank yourself for enduring this bit of suffering because you’ll have a fuller grasp of exactly what’s expected of you, the borrower, according to the contract.

Know Your Credit Scores

Get all three of your major bureau credit scores as well as your FICO score. You can get them all free from the bureaus and/or from your bank. If you have trouble reading the reports or interpreting the numbers, ask your banker to help you. There’s a ton of information in each report and some of it might be wrong. This is your chance to correct it and amend the official record before applying for credit. Beware of the many internet scams that ask you to pay for your scores. If you contact the bureaus directly, they’ll give you a free report once per year.

Assemble All Documents

Most applications call for several documents. You’ll often need one or two prior year’s tax returns, proof of employment, proof of income, a legal release allowing the lender to check your credit scores, two or more forms of valid ID, and more. Whatever the specific application demands, don’t wait until the last minute finding it. Assemble all the necessary documents as early in the process as possible. Some banks and mortgage companies ask for birth certificates on larger dollar-amount packages, so you might need time to dig up a certified copy to provide alongside the other documents.

Send It

Before you snail-mail or email the application document, make a couple copies for yourself. Double-check the address for mailing, whether a physical or email address. Check the contract to see if there’s information about how long approval takes. Note those dates and then send the app. Don’t bug the lender by phone until several days after the official latest date for approval. Follow up is important in case there’s a snafu or one of your official documents wasn’t sufficient. But always let enough time pass before checking to see that all is well. Many banks and mortgage companies will give you a phone number or website address where you can check on the status of your app a week or so from the date you apply.

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Don't Let Loan Illiteracy Hinder Your Lifestyle
Everyone has heard of math illiteracy but few people ever speak about a more pernicious problem among otherwise educated adults: loan illiteracy.
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