You do not apply for a loan on a whim. There are a lot of factors to consider before putting yourself in an irreversible situation. You have to remember that once you put your signature on that contract, or at least after the usual 3 day grace period, there is no turning back. The inability to repay one's loan could lead to major changes in one's standard of living.

Secured and unsecured loans are the most popular loans available in the markets. A secured loan is usually taken out against collateral. The process of acquiring this kind of loan is much quicker especially for those who have bad credit history and low credit rating. Since there is already a tangible asset that can be defaulted to if the loan remains unpaid, finance institutions give much lower interest rates for secured loans.

But if you fail to pay, you will have to be ready to give up your property. An unsecured loan on the other hand is usually given to people who have good credit history as well as high credit scores. Moreover, the rates tend to be lower in the case of loans that are secured.

But you will need to look at other factors as well once you have decided which loan type you will be going in for.

Interest Rate: Even if this is one of the most important details governing our decisions, you should not be blinded by faulty advertising. Remember that in the case of low interest rates, the payment duration will also be longer. So calculate if you will be saving anything. If the interest rate is reasonable compared to the loan term, then go ahead and sign those papers.

Loan Term: A lot of loans have fixed terms, usually 15, 20, 25 or at most 30 years. Some lenders will enable you to change the term, if they think you can pay the whole debt off within half the time. Check to see if early repayment is an option that is open to you. Ask your bank if they offer opportunities to pay them back earlier or later, and how the change will affect your interest rate as well as monthly payments.

Hidden Charges: Make sure you read the fine print before finalizing a deal. There might be charges you are not aware of, especially for home equity mortgages. Do not ignore the long list of penalties and fees that you might be liable to pay.

Floating or Fixed Rates: If you availed of a fixed rate loan, then you know exactly how much you will be paying every month. Chances are your parents had a fixed rate loan on their first mortgage, because it was the only one available to them during their time. However, floating rates soon emerged in the world of loans and mortgages.

This is also called an adjustable or flexible loan in some cases, as the interest rates vary annually or quarterly, depending on the terms of the loan. In a given year, you could run the risk of paying more interest or you could be fortunate enough to pay a small amount.