Avoid These Personal Loan Mistakes
A loan could provide you leverage to get assets, build a business or live a better life. However, one mistake in getting a loan could make you pay a hefty price for years. Here is a list of some personal loan mistakes that you should avoid.
Have a keen look over origination fees
Irrespective of the reason to apply for the loan, you are charged with origination fees to process the application. This fee is based on the amount of credit granted on your request. You are obliged to pay as low as 0.5 percent and as high as 2 percent over mortgage loan as per your lender’s policies.
However, you are not obliged to pay the origination fees upfront as it can be included in the final loan total. Thus, the more significant your loan amount, the higher your total interest measures in the long run. For instance, getting a loan of $5000 at a 6 percent interest rate of a five-year payoff will cost you around $800 as interest. Adding $100 as the origination fees will push the interest amount by $20. Although it may sound marginal yet it can easily disrupt your budget in case of large loan amounts and higher interest rates.
Ignoring the math
All of us compare interest rates of different lenders, yet only some are interested in knowing about the maths used in calculating the interest on their loan. A private financial institution works way differently than a bank, and the same goes for a credit union.
Whenever we ignore the calculation methods used by these lenders, we consciously miss the chance of paying lower interest amounts and settling the debt early. Again, you must also be aware of your lender’s policies about early and late payments. The information will save you from making stupid decisions that hurt your pocket in ways you can’t imagine.
Check out for penalties
Concerning the above statement, we advise you to check for a prepayment penalty clause, especially on a personal loan. In such a case you are bound to give cash to the lender for wiping out the loan before the schedule. Thus, the lender can make out for all the interest it is losing by earning the exit fee. Make sure to thoroughly read the clauses before signing on the dotted lines and ask questions for everything you do not understand.
You can also take help from a financial advisor whose roles become essential if you are frequently applying for and settling loans. They will not only save you from such expenses but also guide in other finance related projects. Remember, a helping hand is all you need while negotiating with lenders who are eager on costing you as much as they possibly can. You can check out one of our articles to hire a better financial advisor.
When it comes to personal loan almost all of us make mistakes. Whether significant or minor, these mistakes can potentially cost you more than your actual expenses. Thus, it is better to know about the hurdles you must pass to save your hard-earned money from greedy lenders.
Remember, a personal loan is an individual accountability you cannot run from. With the right knowledge, you will be able to fight to create a best-case scenario for your financial success.