Understand These Risks Before Applying For A Personal Loan
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When you are cash-strapped, getting a personal loan can be a good way of salvaging the situation. If you have a good credit rating and a stable source of income, it is usually not hard to secure a personal loan from a reputable financial institution. When you are in a bad financial situation, it is easy for you not to see the pitfalls of taking out Fast Personal Loans because all you want is to sort out your immediate financial needs. You may become oblivious of the risks that are involved and end up getting into more trouble.
It is always advisable to do your due diligence about the financial implication of the loan. Here are some of the risks you should be aware of before applying for a personal loan.
Interest rates
The interest rate is usually the foremost factor when taking a personal loan. You need to evaluate the interest rates your bank is charging you and ensure that you are not slapped with exorbitant interest rates unwittingly. You could also compare the interest rate with other types of credit, like credit cards, to see whether they are offering lower interest rates. It would also be wise to establish the total amount of interest you will be expected to pay and assess whether you will be able to repay without any difficulty.
Another thing that confuses many people is the interest rate and comparison rate. The interest rate is the interest rate at which the bank will offer you the loan on its face. The interest rate does not factor in the compounding effect of other fees and charges. On the other hand, the comparison rate is the interest rate that factors into the known fees and charges for the loan. For instance, if the loan is being offered at 12%, you could find that the comparison rate is higher depending on the loan term and the number of fees and charges. Therefore, it is important to know the full cost of the loan before taking the loan.
Repayment Term
Many financial institutions amortize the total payable loan so that you partly pay the principal and interest on a regular basis (monthly, fortnightly, or weekly). You should confirm the repayment period and installments frequency for planning purposes. In most cases, a longer loan term coincides with lower monthly installments and vice versa.. If you establish that the monthly payments are higher than you anticipated, ask your bank whether it can restructure the loan to extend the repayment period, effectively reducing monthly payments.
Ability to Repay the Loan
You do not want to bite off more than you can chew. As such, it might be necessary to establish whether you will be in a position to service the loan to term. Sometimes you might find that your financial wellbeing will only last a short period, after which it will wither away. If this is the case, you need to navigate carefully to ensure that you will not default or struggle with repayments in the future.
It is advisable not to take the loan if you do not have a good plan on how you are going to service it. Borrow only the amount that you will be able to pay back to avoid sinking into financial problems.
Upfront Loan Processing Fees
How much will you pay for the loan to be processed? Do not ignore these costs as they vary widely with different banks with some banks charging high loan processing fees. Confirm that the fees you are paying are competitive and within the range, other financial institutions are charging.
Implications of Defaulting
Many people are usually in a hurry to take a personal loan without thinking about the implications of defaulting on the loan. Read through the terms and conditions to establish the recourse the bank has in case of default. Some banks may want the loan to be secured with collateral or guarantors. Therefore, it is imperative to take your time to read through the loan contract and ensure you understand all the implications in the event you default. In many cases, banks or lenders have a legal right to confiscate your assets or compel your guarantors to pay