Sometimes things come up in life that require more money than we have in our bank accounts or lying around the house. Maybe you are looking to buy a new home or car, pay for college, or pay off some credit cards. Whatever your life circumstance, you may find that taking out a loan is your best option.
There are thousands of lenders out there looking to give you the money that you need at the rates and terms they provide. Before you take out a loan, though, there are some important things you should consider…
- The length of the loan. Sometimes your lender will try to tempt you with the option of taking out a larger sum than what you have asked for for your needs. This is tempting, but it can extend the length of your loan and increase the amount of interest you pay over time. The lender may also recommend smaller monthly payments, which can also be tempting, but in the long run any loan you take out should be for the smallest amount possible and get paid off in the shortest amount of time. This will limit the fees and interest you may pay.
- Variable versus fixed. Lenders may grab your attention with low interest rates, but if you are not careful those low rates come with a hefty price tag. Usually, very low numbers are attached to what is called a “variable” interest rate. This means they can start out one rate but rise or fall with any numerous conditions that the company places on their average rate of the time. You are better off, and safer, going with a “fixed” interest rate, even if it is slightly higher. This way, the company cannot change the rate they charged you from the beginning for the life of the loan.
- Watch for hidden fees. Your focus should be on the TAR – the total cost of the loan, or total amount repayable, rather than the APR, or the annual percentage rate that you will be paying. Often, the TAR is loaded with hidden fees such as origination loans or paperwork fees. Many times, there are hidden prepayment penalties as well, so if you try to pay off your loan early you may incur a hefty fee that would make it almost not worth the effort.
- Shop around. There are many, many lenders out there who want your business. With a little extra time and research, you should be able to find one that meets your criteria and has little or no hidden fees and a fixed APR on terms you can afford. If your credit is a little on the lower side or you have bad credit, you may need to look into alternative options like payday loan companies such as Money Boat. These places are quick to give loans with minimal requirements and no credit necessary, but their repayment terms can be steep. They are good for people looking for fast money without a lot of hassle.
- Watch for enticing tricks. Many loans will try to attract your business with giveaways, promotions, cash back offers, or other exciting options. Be careful, most of these “free” gifts are paid for by you somewhere in the terms of your loan.
- The bottom line is if you need money, there is likely someplace where you can get it. The important thing is to decide how urgently you need it, determine if you can shop around, and watch for hidden tricks if you can. If you can’t, and you need money now, try a payday loan but pay attention to the repayment terms to ensure you can handle the payback amounts.