7 Things To Avoid When Taking Out An Unsecured Personal Loan
Anytime you apply for a new loan, you are entering dangerous financial territory. You are placing your income at risk, and you may be subjecting yourself to some costly traps put in place by the lender. The following tips will help you in avoiding these “lender money-making gimmicks” if they come your way.
1. Don’t succumb to the temptation of the lender offering more money than you need. If you have good credit, some lenders will attempt to convince you to take a much larger loan and spread the payments out over a longer period of time. The lender isn’t making the gesture to help the borrower. The lender has only one goal and that is to make as much money from you as possible. You never recover the amount of interest you pay on debt. Take your loan out for the smallest amount of time possible, and make the largest monthly payment you can afford.
2. Insist on a fixed interest rate. Keep your eyes open for the word variable and reject any loan that won’t provide you with a fixed interest rate. Variable rates can keep increasing and making more money from the bank.
3. Compare the interest rate of an unsecured loan with that of a secured loan. If you can save money with a secured loan, consider finding a cosigner or putting up your car or some other item of value for collateral.
5. No matter how nice the tellers are, don’t trust your bank to be watching out for your best interests. Your own bank is least likely to offer you the best loan deal. They are in business to sell expensive banking products to their existing account holders. Shop around for the best deal. If you bank in more than one institution, you may be able to leverage that to get a good deal from at least one of the lenders.
6. Watch for any “add-on” terms that lenders enjoy sneaking into the contract. Ask if there are any specific terms to be met if you are late on a payment or if you default on the loan. Before you take out a loan, be aware of all costs associated with it including payment protection insurance, collection fees and late payment penalties.
7. Keep your eyes open for sales gimmicks. Lenders have products they want to sell and they will try and get you to add to them to your loan. Say no to “cashback” plans and payment holidays. If your loan offers “cashback,” it will be more expensive, and if you decide to pay the loan off early you will lose the “cashback.” If you take a payment holiday, remember that your interest is still building and will increase the repayment of your loan and that can be expensive if you do it every year.