Sooner or later in life, everyone is going to need to borrow money. It happens, either because you’re making an investment in a residence, going to college, or buying another big-ticket item. There are many types of loans to choose from, all with different interest rates and grace periods. Before you jump into the first loan you can find, you should do some research and know what you’re getting into. In fact, here are five things you need to know before you think about taking out a new loan.
Shop and Compare
Different loans come with different interest rates, depending on the loan amount and the lender. Read any contracts thoroughly, the fine print, everything. Make sure you’re not signing up for a loan you can’t afford, and the interest isn’t robbery. You could be saving money on interest rate charges by going somewhere else most likely. Here is a long list of many loans in the UK.
Bulk Borrowing = Lower Pay?
Did you know some lenders will charge you a lower interest rate if you borrow a larger loan? It sounds crazy but it makes sense, like bulk buyers who sometimes can get a discount, or when you see a deal in the store, “Buy Two Get One Free.” Same concept; the lenders figure they are making enough money with the loan itself. You can find some competitive rates for loans between £7,500 and £14,999/$5,000-$10,000.
Look Out for “Payday” Loans
Some loans are aimed at specific consumers, namely those that are living from paycheck to paycheck. Known as payday loans, it’s a dastardly practice, but lenders will award loans to these people, only to charge them with high interest rates. How this helps someone already struggling with their personal finances, is beyond understanding. Look out for these unless you enjoy piles of debt.
Is the Advertised Rate the One You’re Getting?
Again, read the contract and the fine print. The loan rate you’re advertised may not be the loan rate you’re offered. There will usually be a wide range of rates offered by a lender, and the lower rates don’t necessarily need to be advertised to clients. Some 51% of consumers or applicants hear about the advertised interest rate.
Loan Application Overload
If you have bad credit, you may already be looking at bad loan rates, or at least not the best ones you could find in the market. Your credit will determine a lot about loans, such as what interest rates you are eligible for, and sometimes the loan itself if your credit is really bad. Getting rejected for a loan application can hurt your credit even more, which then hurts your chances of credit in the future. It’s a brutal cycle, so don’t pack on the loans with too many applications.
Fighting off the Debt
If your loans start sending you into debt problems, you can get some help with credit counseling. Organizations like Consolidated Credit specialize in credit management and offer credit help to work with you on your personal finances and your credit. Contact an agency when managing money gets tough or you just want some guidance.
These are the five things you need to watch out for when it comes to applying for loans. If you’re not careful, it will cost you a lot more than money.