Personal loans are the popular jocks of 2018. A recent survey revealed that almost 24 million consumers in America, which equates to roughly 10% of all American adults have their eyes on personal loans.
It’s no surprise really.
These loans are indeed a great way to get some quick cash to help you out of a tight spot. But they do not come without their dangers. Lenders are responsible for accepting or rejecting applications within 24-hours.
You are responsible for your due diligence to help you make sure there are no unexpected nasty surprises lurking around the corner.
Never fear! Through this article, we will go through some of the most common surprise expenses and how you can go about avoiding them.
Where Are The Unexpected Fees Hiding?
When applying for loans, there are unforeseen fees that you really need to know about. As they could make all the difference for your budget. Some of the biggest fees include:
Paying More Does Not Always Necessarily Mean Less
When you get a large sum of cash, its natural to want to put as much of it as you possibly can into paying off your loan.
Unfortunately, if you are on a precomputed interest agreement, this is a bad idea.
Despite the peace of mind, on precomputed interest, you will be charged additional fees when you pay more than should be paid for that month.
Make sure when you take out a personal loan, you ask the lender whether or not the loan is “pre-computed interest”. But generally, it’s good practice to stick to the scope of agreement for your loan. As this will reduce the risk of unforeseen costs.
Make Sure Your Interest Rate Is Fixed
It’s amazing how a one percent increase in a loan can throw your entire payment scheme out the window.
Majority of the time, personal loans are fixed-interest agreements. However, if you are continuously paying late or failing to pay your dues, certain banks do have the right to adjust the interest rate to reflect on this.
You can make sure this doesn’t happen by verifying it with your lender. But as with any debt, we advise you prioritize it and make sure it’s paid when expected. This just keeps the headaches at bay in the long-run.
Of course, refinancing your loan is always an option. This is essentially when a third-party organization “buys” your debt. Leaving you room to negotiate a better rate and even payment plan. But we recommend using this as a last resort.
You Pay Whenever Cash Is Handled
Whenever you cash out. Cash in, or deal with cash in general regarding the loan, you pay a percentage rate on the total handled. Which means over-time multiple disbursements can get really hefty.
Which is why we recommend ensuring you only have a once off disbursement with your bank. This will save you a fortune in the long-run. You can read more about disbursement costs and terms here.
You Will Pay For Information Entered Incorrectly
It could be something as small as the wrong number in your home address. A typo in your name. Or missing information.
Whenever you request to modify information on your account, you will be expected to pay a fee. The reason behind this is time for additional work, and of course, interruption of loan processing.
Adulting really blows sometimes, right?
The TAR Is More Important Than The APR
When you are searching for a personal loan you can afford, your natural instinct will tell you to pay particular attention to the annual percentage rate (APR). But at the end of the day, this is something that can be manipulated by the lender.
Which is why you want to pay close attention to the Total Amount Repayable (TAR). This is the fixed price that you can expect to have paid off by the time your loan is settled. This will also give you a clear indication of what you will be expected to pay on a monthly basis.
Tips To Help You With Your Personal Loan
Know What You Can Afford
Bite the bullet. The hardest pill to swallow when taking out a personal loan is to only take out what you can afford to borrow.
After all, $100,000 sounds so much better than a mere $10,000. Right?
But staying out of debt probably sounds a heck load better too.
Remember, even if you are able to pay off a bigger loan over a longer period of time, you will still pay a bucket load on top of that in interest accrued. A general rule of thumb is to only borrow a third of what you earn per month.
Pay Attention To The Terms And Conditions
Who even reads terms and conditions anymore? Heck, even I tend to only glace through them most of the time. It’s just too much-bundled text to handle at once.
However, this section is jam-packed with important information about your loan. From your payment plans to early payments, rate negotiations, and so much more. So, you really want to make sure you give this a proper read before applying for your loan.