Are you fantasizing about your soon-to-be home? Perhaps you are dreaming about buying a new car to make commuting easier. Even if you’re looking for a solution to help you out between a rock and a tight place, a loan can certainly do the job.
But at the same time, if you don’t know what you are doing, loans can be extremely risky. Which is why you want to make sure you know everything that you need to know before you decide to take the plunge.
The good news is we have made a list of important considerations that you need to keep in mind when taking out your first loan.
Ready to find out what you need to know?
Go Big Or Go Home – It Does Not Apply When It Comes To Loans
When taking out a loan, it seems like you are getting money for free. Which often tempts individuals to go for a larger sum of money than they actually need. Lenders are far from helpful, as at the end of the day – their job is to make money off of your interest.
Lenders typically will advise you to choose the longest repayment plan possible. With the guise that it will reduce the overall monthly payments. But you need to consider what the total amount paid will be in comparison to what you actually borrow.
Which normally, is why you want to choose the shortest possible repayment schedule within your financial means.
Looking At The APR. Vs TAR
Okay, so basically the Annual Percentage Rate (APR) of any loan is the interest that you see when you take out a loan. In other words, the total interest that you will pay over a period of a year. Whereas Total Amount Repayable (TAR) is the total amount you should pay by the end of the repayment plan.
The problem with the APR is that lenders do have a measure of control over this. Which is why you need to pay particularly close attention to the TAR on your loan.
Quick tip: When taking out a loan, be sure that somewhere in the loan terms and conditions it mentions that the APR is fixed. You don’t want to have to pay for unexpected increases in interest rates.
Expect To Pay More (Or Less) Based On Your Interest Rate
Depending on what type of loan you are looking to get, your credit record/credit history will play a big role in the final interest rate you can expect to pay on your loan.
A few percentages can save you thousands of dollars in the long run.
We really recommend that you take a look at your current credit record before applying for a loan. It is also a good idea to get a hand on your credit history to check for any administrative errors that could be dragging your record down.
Of course, if the loan is not urgent, it may be worthwhile to spend a few months working on improving your record before you take out a loan – it could prove far more affordable in the long-run.
Your Obligations May Be An Obstacle You Face To Get A Loan Approval
Your income is one of the deciding points behind your application either being accepted or rejected.
“But I clear a ton of cash every month” – that may be what you are thinking, right?
Well, lenders don’t base it on what you earn. They base it on what you spend. For example, let’s say you clear $3000 per month. That’s all fine and dandy. But if your expenses come to $2970 per month, realistically speaking you will not be able to pay off your loan, right?
When applying for a loan, you will probably be asked to provide a list of monthly obligations. Such as your rent, insurance, medicals, and any other expenses that you have no choice but to pay on a monthly basis. Then they will evaluate what is leftover vs what your monthly repayment plan will be.
Make Sure You Understand Any Additional Fees That May Be On The Loan
Ah, the love of hidden costs. When you invest $2000, and it turns out you actually have to pay $6,000. Okay, so loans are not usually this extreme, but it is really important to make sure you know of any additional add-ons to your repayment plan.
For example, certain lenders actually charge you for debt-collection, payment protection insurance, and a few other things. So be sure to clear the air regarding this before submitting your application.
Make Sure You Find A Lender That You Can Trust Enough
Lenders can be rather cunning. Leaving you with unreasonable interest rates, and high-end hidden costs. Which is why it is incredibly important to ensure you find a lender that you can trust. We recommend doing some background research to make sure that their previous borrowers had no problems with the transaction.