7.
What are the "hidden" or total costs of the loan?
The stated
interest rate is often artificially low when one considers all the
costs of a loan. Points, for example, are direct percentages of
the loan that the lender deducts from your loan. If your interest
rate is 9% with two points that means your real cost of the loan
is 11%. The extra 2% comes right off the top into the lender's pockets.
Other costs may include:
•
Legal fees,
•
Survey charges,
•
loan application fees,
•
Appraisal charges
•
Every item that will be charged against your loan or that must be
pre-paid.
For some
loans, these charges can be tens of thousands of dollars. They often
must be pre-paid before the loan will be approved or rejected. You
will need to know whether you are likely to be approved before spending
money just to qualify for a commercial loan.
Other questions to ask
•
Will my interest rate go up if U.S. interest rates go up in general?
•
Is a fixed-rate alternative available?
•
Can I get a discount for paying your mortgage faithfully and consistently
over a period of time?
Some lenders
allow for decreases in the interest rates over time if you pay the
mortgage on time. But if you want to refinance and repay your mortgage
early, the lender may penalize you and charge extra interest. All
of these details are important, and they can seem overwhelming.
Keep in
mind how you expect your business to perform in the future and how
you plan to repay the loan. Do not ignore worst-case scenarios.
You do not want to be so optimistic about the possibilities that
you lose sight of the fact that the lender may take away your business
or livelihood if you do not meet all the terms. Sometimes the lowest
interest rates represent the riskiest loans.
The Best Lender
When considering
a commercial mortgage, borrowers should seek out lenders who are
willing to fund the loan under acceptable time constraints, keeping
in mind their general creditworthiness. Borrowers should look at
both bank and non-bank funding in order to get their needs met in
a timely manner. Asking questions and obtaining unbiased evaluations
will reduce delay and frustration. Fortunately, new lenders have
emerged to challenge banks on their traditional terms, so borrowers
have more leverage now than ever before when seeking commercial
loans.
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