It is not too uncommon for people to find themselves needing a personal loan. Perhaps a little extra money is needed for a medical situation, an emergency car repair, or even that once-in-a-lifetime purchase that just can’t be afforded any other way. Personal loans can satisfy all of these types of situations. Before getting one though, it is wise to become familiar with a few facts about loans in general, as well as the specific, personal loan you may be interested in. Here are five things to know before taking out that personal loan.
In most cases, the loan is payed off without incident. Sometimes however, the borrower falls into a state of default, not having satisfied the terms of the loan’s payback. Be sure to know what happens at this point should you ever fall into default. There is nothing worse than being surprised by the loss of personal property or exclusive access to your bank account. Chances are that you will not need this information, but being aware of default ramifications is important before signing on with any contract.
Understand Interest Rates
It is important to fully understand a personal loan’s rate of interest accrual beforehand. Some loans have very high rates while others are much lower. Some rates can also change based on trigger events that may occur along the lifetime of the loan. As defined by Wikipedia , this kind of personal loan is often referred to as a “bullet loan”. In a bullet loan, the interest rate can be subject to change at any time and at a mere moment’s notice. Get this information first and use it to do some smart comparison shopping for the right loan.
As mentioned above, default is the worst thing that can happen with a personal loan. Before this happens, many lenders will offer some extra options in order to prevent this ultimate loan state. These can include one-time payment passes, promise systems, holiday forgiveness specials, and more. Should you ever get into any trouble with your regularly expected payments, it’s very helpful to know in advance what options are available to you through your lender.
On occasion, your lender may reserve the right to sell off or trade your loan to another company. If this happens, you must then learn how to navigate this new company’s system for the remaining term of your loan. This can be difficult and confusing. Check beforehand if this possibility is addressed in the contract or if your lender has been known to employ this practice in the past.
Avoid Paying Upfront
Finally, know that most credible lenders will not request an “advanced fee” of any sort. Such requirements typically lead to scams that promise a subsequent loan that never comes. Stay away from any lender that needs money from you first.
On the other hand though, “origination fees” are a legitimate part of some lending processes. As discussed at Bankrate these fees have a direct impact on APR factors and should be considered carefully. Simply put, it is just a good idea to try to avoid any fees attached to or asked for at the start of your loan.
In conclusion, read over all of the details of any loan before signing. Knowing everything that you are agreeing to first can save a great deal of regret and trouble later. Kept in mind, these tips will help you greatly when making your personal loan decision.