The Do’s and Don’ts of Accepting a Loan Offer
Personal loans can be used for various purposes such as financing a home renovation, paying for the wedding or funeral expenses, but mainly merging the credit card debt. Loans became common after the 2008’s financial crisis and are one of the fastest-growing products in the banking industry. However, it cannot be suitable for every person mainly because the banks and lenders are increasing their lending benchmark in 2020.
Personal Loan Is Unsecured Loan
Many of the personal loans given out are not secured which means that they don’t require any sort of guarantee like a house, as a guarantee for the bank. With these loans, you use a set amount of money that has to be paid over a fixed time at a fixed rate of interest. Even though all of this seems very easy, there are certain complexities that need attention when asking for a loan that does not catch the eyes in an instant such as the type of fees charged on the loan or ensuring that no errors are made in the credit reports. Some do’s and don’ts mentioned below will help you for getting a personal loan.
Always look over your credit reports. Our credit score and history are the major components that need to be looked at when determining the interest rate at which you receive a loan. Banks use credit as a criterion for risk. If you make your payments on time, there is a high chance you will be able to repay your loan. Thus, your interest rate depends on your credit, the better the credit, the lower your interest rate will be which generally ranges from 4% to 36%.
Compare the APR. APR is the yearly interest that is earned by the sum charged to the borrowers. The difference between a low and a high rate of interest can be a lot. If you have a $10,000 loan, to be paid over a 5-year period, over this time the difference in the overall cost between a 10% APR and 25% APR will be around $4862.5.
Examine the risk for bad credit. If your credit score is “good” according to the FICO standards, then you will find it difficult to get a reasonable interest rate on your loan. Furthermore, those who have filed for bankruptcy or do not have a well-known credit history will too struggle to get a loan. Thus, people who can relate to any of these situations should think about a consignor who can help them get successful in getting the loan or consider a secured loan. A consigner guarantees the bank that the loan will not be left unpaid because there will be a third person responsible for it.
Look at the fees. In order to avoid paying an unexpected fee in the future, certain features of the loan should be considered. These include whether or not the amount of interest and whether it is fixed or variable, if there is a need to give security for the loan, and if any fee is to be paid in advance for the loan. Questions to address also include: For how long will you be making monthly payments? Will you be able to make these monthly payments? And will you be charged if you pay the loan early?
Get shortlisted from various lenders. Shortlisted or pre-qualification is when you self-report your financial information and the required loan to get an idea of what personal loan you will get. It basically informs you beforehand, as an informal estimate, whether your loan will be approved and what these loan conditions will be.
Don’t accept the loan that gets approved first. Look around the market before saying yes to any loan. Lenders have their own way of analyzing applications, some agreeing on one variable while the other completely ignores that. For instance, one bank might not like you getting laid off from your job while the other may not care that you have an excellent credit history.
Get the maximum loan you can. This doesn’t mean that you get a big loan only because you can afford it. It can backfire if you out of the blue lose your job.
Put a monthly reminder so that you don’t miss out on any payment. Missing payments or delaying them can put a negative remark on your credit history.
If you can follow these don’ts and do’s, you can certainly make the right decision while taking out your next loan.
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