Last year, lenders disbursed over $120 billion in personal loans to borrowers. If the indicators are correct, it looks like people will borrow even more this year.
This is not surprising seeing as there’s more cash in circulation. As a result, more people prefer to take out a loan for their many needs.
Some of the reasons people borrow include surviving till the next paycheck, car payments, moving to a new apartment, medical emergencies, settling payroll issues and home renovations.
While it’s relatively easy to get some of these loans, paying them back can be such a hassle. Which is why it’s smart to pay attention to possible outcomes and understand how they work.
57 percent of Americans currently have less than $1, 000 saved up. This means if there’s an emergency, many have to rely on alternative funding sources like loans.
While there are a ton of loan options available to you, it’s important to take your personal situation into consideration. This is the most effective way to get the best rates and loan terms available.
The following tips should help!
Explore Alternatives to the Loan
Yes, we know you’re reading this because you already decided on getting a loan. But, do you have to get it from institutionalized lenders? Sometimes, family and friends can help out, particularly when the loan isn’t a lot.
We get it, you don’t want family members or friends knowing about your financial problem. However, if they can help, it might be better to swallow your pride and talk to them.
Ascertain the Reasons for the Loan
Just because you have access to loan facilities doesn’t mean you should take it. About 53 percent of parents take out loans to splurge on unnecessary items for their kids.
Most of these parents state that they wanted their kids to have experiences they never had. They are consistently spending $1, 000-$5, 000 on non-essentials that their kids don’t need.
This means parents end up being in debt for the better part of the year, just because they want to please their kids. So, do the smart thing and see if saving towards the project will be better.
Never Borrow More Than You Can Pay
if you have decided to take out a loan, determine how much you can actually pay back and when; based on your current financial situation. Too many people take loans based on their projected cash flow or income.
Most people who take out student loans do so with projected income in mind. Even worse, 40 million Americans currently “own” homes they really can’t afford. Unfortunately, the reality is many are struggling to meet up with these loan repayments.
Don’t make this mistake. Remember that projected income is not the same thing as your current income.
As a rule, never take on loans that exceed your paycheck. It’s that simple. If you earn $3, 000 a month, your loan should be within that range. That’s how to keep your debts manageable.
Pay Attention to the Loan’s Terms
Less than 1 in 1000 borrowers read the fine print because it’s boring, tedious and mind-numbing. Sometimes, lenders do it deliberately, so as to deter borrowers from looking too closely.
As a result, many unwittingly sign themselves up for a world of stress when taking out a loan. Some lenders include “special clauses”, hidden fees, and failed payment fees in their terms.
Others have pre-payment penalties in their terms. So, if you pay up on time, you’ll get penalized. It’s not fair, but it is what it is. Also, make sure you know what your lender’s interest rate is.
Use this calculator if you’re applying for a small business loan and others. Ignore APRs and focus on total amount repayable. Pay attention to the breakdown, so you know how much you’ll need to pay back and how long it’ll take.
Explore Non-Conventional Lenders
Fintech or peer-to-peer lenders come to mind. Don’t just rely on traditional financial institutions.
Fintech lenders have cornered the market’s largest share, taking 13 percent from traditional lending institutions in the process and gaining as much as 30 percent of the entire market.
P2P lending was estimated at $54 billion last year, with a projected volume of $1 trillion by 2050.
This is possible because they offer unsecured loans and are often willing to push the boundaries of lending regulations. They’re also willing to take on more risk by lending to people with bad credit.
So, if your credit score is low, you should be checking out these alternative lending sources. If not, check the regular banks, credit unions, and traditional finance companies.
Variable Rate or Fixed Rate?
Variable rates tend to balloon later. Avoid those and just stick to fixed rates. The appeal of variable rates lies in its lower initial payments.
Variable rate financing often seems like a good deal at first, but over time, the interest rates can become quite astronomical.
Avoid this by just choosing the fixed rates. They may be a bit expensive at the beginning, but the overall costs won’t be as high as variable rate loans.
Be Careful About Automatic Payments
Lenders often offer incentives for automatic deductions from your bank on the due dates. If you’re sure you’ll always have enough for that, go ahead.
Automatic payments can be a big pain in the ass when you have other plans for your money. So, you might want to set up an option for manual payments. This will give you some control over your payment schedule.
Is This All You Need to Take Out a Loan?
Well, there’s a lot more. For instance, take note of your credit score. It can make or break your interest rates. If you’re getting unusually high interest rates from prospective lenders, go check your credit report.
People with bad credit history or low credit score are considered high-risk clients, hence the high interest rates. Also, avoid late payments as they tend to attract penalties. Bad loans affect everyone.
Following the aforementioned tips will help you choose a good loan provider and pay off your debts faster.
If you want more informative tips on everything from getting good loans to debt settlement, visit Axcessnews!