What to Consider Before You Get a Loan
Cost isn't the only issue when it comes to taking on debt. You must pay attention to these three equally important factors.

My friend Sammy recently bragged to me about the luxury car he bought using borrowed funds. He proudly said his loan terms were 0% for 60 months, and his monthly payment of $995 is all principal, no interest!
Sound familiar?
Interest rates are low, and if you have a great credit score, many lenders are eager to offer you very attractive terms to borrow. Should you jump in and acquire the debt? Even after you've analyzed the costs from various sources and decided on the best offering, taking on a loan may not be a good move—at least, not without asking yourself these three questions.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Why am I borrowing?
Dig deep and ask yourself the question: What are your real reasons for borrowing? Is it to get something you absolutely need, or are you borrowing to get something you may want?
Let us drill down to clarify what are needs versus wants. Are you looking to borrow to cover the expenses for a medical emergency? Is it to buy a car so you can commute to work? Is it to purchase your first home? These might all qualify as needs that would be well worth the debt.
Or are you borrowing to get a $995 a month luxury car? A vacation home on the beach? That expensive, state of the art, high-tech gadget that you hardly use? Those all sound more like wants that you should save up to purchase rather than borrow to get.
Financial Savviness 101: Don't borrow what you do not need!
2. Do I have enough cash flow to sustain the payments?
It is true that your lender has approved the loan after reviewing your current cash flow status. Does this really mean you can sustain the additional cash flow for the duration of the loan?
For example, consider Sammy's case above: He is required to cough up a payment of $995, not just this month, but for the next 60 months. That will have huge cash flow impact on him for the next five years! Let us see if he is prepared.
- What if he or his spouse lose jobs during this period? Will he still be able to cover the payment?
- What if his children are college bound in a couple of years? Will this payment disrupt his goal to fund his kids' education expenses?
- What if he or his spouse has a medical emergency during this period?
These questions are best answered by developing a budget, and then seeing how the loan payment could impact the budget. Kiplinger's Household Budget Worksheet is a great place to start.
3. What are the consequences if I fail to repay?
Borrowing comes with an obligation to repay according to the terms you agreed upon when you got into the debt. So, it is important to understand what could happen if some unforeseen circumstances force you to default on the loan.
Here are few consequences to consider:
- Your lender may report your late payments or defaults to credit bureaus impacting your credit score significantly. This could make it harder for you to obtain loans in future. Are you comfortable with this?
- As part of the debt agreement, your lender may have secured the loan with collateral. In other words, you risk losing the collateral if you default on the loan. Are you prepared for that?
- Your lender may hire a third-party agency to collect missed payments. Collection agencies use aggressive approaches to collect payments from you. This may impact your day-to-day well-being. Can you handle this?
- Your lender may sue you, and if you lose, the court may force you to sell your other properties or force you to pay back the loan from your employment wages. Have you thought about this?
So, what do you think? Do you know why you are borrowing? Do you know if you could sustain the payments? Finally, do you know the consequences if you default? It is not my goal to discourage you from considering a loan, but I hope to prepare you with these non-cost considerations of acquiring debt. Good luck!
Vid Ponnapalli is the founder and president of Unique Financial Advisors. He provides customized financial planning and investment management solutions for young families with children and for professionals who are approaching retirement. He is a Certified Financial Planner™ with an M.S. in Personal Financial Planning.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)
State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five Questions
Who said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on Retirement
While some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest Rates
As speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial Professional
Winning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your Wallet
Interest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
Beyond Banking: How Credit Unions Serve Their Communities
Credit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
-
Want to Advance on the Job? Showing Some Courtesy and Appreciation Could Help
Two business professors share their insights about the impact of digital communication on the social skills of some in Gen Z and the importance of good manners on the job.
-
From Job Loss to Free Agent: A Financial Professional's Transition Playbook (and Pep Talk)
The American workforce is in transition, and if you're among those affected, take heart. You have the skills, experience and smarts that companies need.
-
A Financial Planner's Top Five Items to Prioritize When Your Spouse Is Ill
During tough times, it's easy to overlook important financial details, but you'll be so much better off if you take care of these things right now.