Your Lender Is Not Your Friend
A personal loan is a business transaction. Both parties are trying to get something from each other. You want or need money and your lender wants to make money by giving it to you. They are not your friend and your lender wants to make as much as they can off of you. Because of this, no matter how friendly you think your lender is, there are probably some things that they won’t tell you. Take a look at a few of these things.
There May Be Additional Charges
When you take out a loan, there may be additional charges such as origination fees, document fees and loan processing fees. These are things that may not be initially discussed in the beginning of the loan process, but which must be disclosed to you.
People are often surprised to see these charges on their final loan contracts, which is why it is important to look at your loans APR when making a decision. Your APR is the effective interest rate after adding in all loan fees.
An APR allows you to compare two loans effectively because it takes into account all of the loan expenses. For example, two loan could have the exact same interest rate, but one could have a lower APR. In this case, the loan with the lower APR will have less fees.
Do take note that with mortgage loans, sometimes a slightly higher APR could be a good thing. For example, if you are paying $3000 in points to get a reduced interest rate, you could come out ahead in the end, even with a higher APR. You just need to stay in the home long enough to realize the savings.
Short Terms Can Save You Money
Lenders have their little tricks to get you to accept a loan. This is especially true with car finance departments. One of the biggest tricks is to simply ask you what you want to pay each month. They can then structure a loan long enough to get the payment down to where you want it. This does not do you any favors.
A lengthy loan will have higher interest rates and you will be paying those rates over a longer period of time. With a lower payment and higher interest, most of your first payments will be going straight to paying off the interest and little will be paid on the principal.
You should have a loan term in mind before you apply for your loan, don’t leave it up to the lender. Also, consider shorter loan terms to reduce your rate and the amount of total interest that you will pay. If the payment is too large on a shorter loan, perhaps you should consider borrowing less money.
Some Loans Should Not Be Taken
Loans are a serious matter and the decision to accept one should be made carefully. Your lender is not going to tell you that, they want to make money off of you. Sound financial advice is not something that most lenders will be handing out.
Before you proceed with a loan, make sure that you will be better off for having it. If you want to consolidate credit card debt into a single low interest loan, that is a good thing. On the other hand, if you are taking out a personal loan to pay for a Vegas vacation, you could be putting your finances at risk.
Personal loans are a great tool when they are used for the right reason and when you have the credit rating to make the costs reasonable.
You Need To Shop Your Loan
Your lender may tell you that you are getting a great rate, but how do you know? There is almost always a better deal out there, you just need to take the time to find it.
The last thing that you want to do is be in a hurry to accept a loan. Take the time to explore other lenders and get a few more offers. You might not want all the strikes on your credit, but keep in mind that the credit bureaus know you should shop a loan. Several inquires in a short period should only count as a single strike.
When looking at your loan options, take full advantage of the internet. Gone are the days when you shop locally for a loan. You can now use any lender in the nation which can help you secure the best rate.
Pulling It All Together
Basically, you need to keep in mind that lenders are in it to make the maximum profit. This is not to say that lenders are evil, just that they are in business to make money. That is what business is all about.
Do your research and think your decision through before you commit. Take the time to make sure that you are taking out a loan for the right reasons and that you are getting the best deal possible. This may mean slowing down, but a loan is nothing that you should be rushing into.
