Securing a personal loan is something almost everyone will do at some point in their lives. Whether it’s for emergency expenses, business, study, or any other reason, having that financial safety net will provide you with relief and more confidence in your decision-making. If you find yourself in a loan agreement you can’t keep up with, however, your situation will only worsen as you face financial instability. Luckily, you can avoid this by checking the following five terms before you sign any loan document:
1. The Lender’s Reputation
You cannot be too careful about which lender you choose for a loan, especially if it’s for emergency expenses. Before you start looking over terms, you first need to vet your lender. Be wary of private lenders (or any company offering you money) that you haven’t heard much about and cannot find background information on. For small money loans with low interest, you are better off opting for community lenders who are supported by governments and banks.
2. The Interest Rate
Triple check all terms related to interest payments on your loan. This means confirming that the interest rate in the loan terms matches the rate that you were told (or read about) when you first picked this product. If you notice a discrepancy, bring it up to your lender to correct before you sign anything.
Make sure you also check if your interest rate is recorded as ‘variable’ (subject to change) after a period of time. Sometimes, lenders advertise a low-interest rate loan but the fine print will indicate that it is only applicable for a certain period. After that, the interest rate can shoot up.
3. The Loan Sum
For the same reasons as the above point on interest rates, be sure to double-check that your loan amount corresponds with what you need. Sometimes, lenders will offer a customer a slightly higher loan amount than what they had initially agreed on.
This may initially seem like a generous gesture, and for some people, the higher amount may be more suitable, but it can also put you at financial risk as the fees on the higher loan amount can be significantly more expensive. A debt repayment calculator can show you the difference even just a few extra thousand can make.
4. Late Repayments
Late repayments on a loan can incur extra costs. Late payment penalties are common features of loans, but the costs and terms around them can differ greatly depending on the lender. Make sure you check out what the conditions are for late payments on your loan and how they may affect your budget and repayment plan. Even if you have a good strategy in place, paying a bill late can happen easily. So, it’s best to make sure you’re prepared for what it could cost you rather than ending up shocked by a random extra fee!
5. Early Repayments
For many people, the idea of paying off a loan earlier than expected is thought of as a sensible goal. Some lenders, usually for smaller personal loans, enable this by providing incentives for early repayments. Others, however, charge fees on early repayments or loans paid off before the end of the term. Early repayment fees can be a condition for long-term loans and some fixed-rate loans. It won’t always be the case, but it is definitely something to look out for.
It can be tempting to skim lengthy terms and conditions, but when you’re getting a new loan, it’s not worth the risk. Looking over the above terms is a great way to begin when considering a prospective loan product.