Loans or credit are financial instruments that act like a "double-edged sword." They can be a powerful catalyst in helping you achieve major life goals, such as buying a home or expanding a business. However, they can also transform into a heavy burden that drags down your standard of living if not carefully considered.
Before you decide to sign a loan contract, here are 5 key points you must analyze clearly:
1. Understand the Purpose of the Loan (Good Debt vs. Bad Debt)
Not all debt is bad; knowing how to distinguish between debt types is the first step in financial intelligence:

• Good Debt: Borrowing money to "invest." This is a loan used to buy assets that can appreciate in value or generate return income in the future.
  • Example: Home loans (real estate tends to appreciate), student loans (increasing earning capacity), or business expansion loans.
• Bad Debt: Borrowing money to "spend." This is a loan for buying things that depreciate quickly immediately after purchase and generate no income at all.
  • Example: Loans to buy luxury cars just to show off, buying the latest series phones, or luxury consumer goods.

2. Check Repayment Capacity
Do not rely solely on "water that will arrive" (future income), but look at the "water already in the jar" (current income). You must organize a clear list of your income and expenses.

• Safety Formula: As a general rule in finance, total monthly repayments (counting old debt and this new loan) should not exceed 30% to 40% of your monthly income.
• If repayments eat up to half of your salary, it is a danger sign that you might face a financial crisis when other necessary expenses arise.

3. Understand Interest Rates and Various Fees
Don't just look at the monthly payment amount; look at the total "cost of the loan."

• Request a Repayment Schedule: Ask the bank or financial institution to show this schedule so you can clearly see how much is principal and how much is interest you have to pay.
• Calculate Total Interest: You should know: By the end of the contract, how much total interest will you have paid? Is it worth the value of the item you want to buy?
• Don't forget to ask about administrative fees and other processing fees that will be deducted.

4. Read the Loan Contract Terms Thoroughly
The contract is law. Neglecting to read or clearly understand the conditions can lead to regret later.

• Points to ask: How many years is the loan term? Is the interest rate fixed or variable?
• Penalties: What is the penalty level if you pay late? And more importantly, if you have a lump sum and want to "pay off early" (prepayment), is there a penalty? (Some banks charge a penalty for early settlement).

5. Prepare for Risks and Contingency Plans
The future is unforeseen. Today you have a good job, but tomorrow is not guaranteed.

• Prepare an Emergency Fund: Before borrowing, you should have savings for emergencies that allow you to continue paying installments for at least 3 to 6 months in case you lose your job or have health problems.
• Collateral: If it is a secured loan (loan with collateral), remember that the highest risk is the loss of that asset if you cannot repay.

Loans can accelerate your success if they are "good debt" and are properly managed. Conversely, they will become a heavy burden if you borrow without consideration. Be the master of the debt; do not let the debt become your master!