Getting A Loan: Things To Consider When Borrowing Money
Most people will have to consider borrowing money at some point of their lives
, some more than others. Everyone has different reasons for why they want to take out a loan. Regardless of their reasons, there are some smart ways to go about the loan process. Making bad decisions can cost you a lot of money and hurt your credit rating.
Before you look into getting any loan, you should always figure out if you can afford the loan and how much you can afford. The easiest way to do this is by drafting a budget listing all of your current bills and debts and adding the potential loan. If after this, you do not have enough money to save or for emergencies, you should probably decide against applying for a loan.
After you have established that you can afford the loan, you will need to find a lender. You should never go with the first lender you find without looking at what other lenders have to offer. The internet is a great tool for finding potential lenders and usually online lenders can offer competitive rates compared to local banks.
The first thing that most people look at when searching for a loan is the annual percentage rate, more commonly known as the APR. This is the amount of interest that will be paid on the loan over the course of a year. To calculate the interest that will be affixed to each monthly payment, divide the amount of the loan remaining by twelve.
In most cases, you want to find a loan that has the lowest APR. But this is not always the case. Sometimes lenders will affix a wide variety of additional fees to a loan. They may provide low interest rates, but make most of their money in fees. Be sure to read the terms and conditions of any lender that you are interested in to make sure you are not overpaying in hidden fees.
Some examples of these fees include services fees, start-up fees, and insurance. Lenders with low interest rates may charge borrowers unreasonable fees such as a fee for making payments or a large fee for simply drafting up the loan contract. Some of them also require their borrowers to pay large amounts of money for PPI or payment protection insurance. This so-called insurance can be up to ten percent of the loan amount and it guarantees that the insurance company will be paid in the event that you are injured, unable to work, or killed. For the most part, it is just another way for them to get more money from you and a waste of your money.
If you are interested in making larger payments than the minimums or repaying the loan early, be aware that some loan companies have fees and penalties for this. In some rare cases, the fees and penalties can be more expensive than the interest. Just be alert to the early repayment fees and determine if it is worth it for you.
You should never borrow more money than what you need. It is always nice to have some spare money for the things that you want. However, you should remember that you will have to pay back all of that money plus a lot more. The simple fact is that most people who take out more than they need usually end up digging themselves farther into debt.
There are a lot of things to consider before borrowing money. However, it is imperative that you factor all of these things into your decision, otherwise you face financial disaster. Taking out a loan is an important decision and should not be taken lightly.
by: Sylvia Neederman
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