Look out for these warning signs if you do not want to end up regretting your decision to borrow.
Usually, the best option for borrowing is personal loans. It is preferred because of lower interest rates compared to credit cards. A personal loan is ideal as it allows you to pay off your loans over a few years or even a decade, depending on the loan amount. Hence, it will enable you to pay off huge purchases steadily.
However, all personal loans created are not the same. Several payday loans, for instance, are portrayed as personal loans. Moreover, some deceitful lenders offer personal loans with adverse or deceiving loan terms.
So, you need to make sure you do not regret taking up a personal loan in the end. Look out for these three big warning signs before you purchase a personal loan.
1. When Your Repayment Period Is Very Short
A short period of loan repayment means a high payment amount as you have a few months or, in some cases few weeks to repay the loan. The problem with these types of loans is that you might not be able to make such huge repayments in such a short period.
It causes damage to your credit scores if you fail to make the timely payments, or you might be tempted to borrow again to repay the previous loan and get trapped in a vicious cycle of taking a loan repeatedly. This type of loan is called payday loans which usually have a repayment timeline of a few weeks, and it makes payday loans the most dangerous and expensive kind of debt.
2. The Origination Fees of the Loan Will Be High
Lenders offering personal loans usually do not charge any origination fees. Whereas many other reliable lenders have a minimum fee to initiate your loan. However, the amount is not huge compared to the percentage of your loan amount.
But if you have been asked to pay a huge origination fee, mainly if the amount of your loan is small, you should stay away. The origination fee will ultimately make your actual interest rate go high, making it difficult to pay back your loan.
3. The Loan Has Hefty Prepayment Penalties
You definitely want the liberty to repay your debt as soon as you can if you have the money to do so. And as a result, it is crucial to avoid a debt that has prepayment penalties.
Most probably, reliable lenders do not penalize you if you want to repay the loan sooner. Hence, there is little to no reason to settle for a debt that penalizes you for being accountable and for paying the loan sooner than later.
How to Get a Reliable Personal Loan Lender
Looking out for these three warning signs will help you avoid an unreliable lender. But how can you find a good and reputable lender? The key here is to get multiple personal loan quotes from different loan providers and compare them in the following characteristics:
- Loan repayment period
- Qualifying requirements
- Origination fees
- Interest rates
- Terms and conditions (such as loan prepayment penalties)
- Time to funding
Choose a lender that is offering the most affordable fees and interest rate. But before getting any loan, make sure that the loan repayment period neither leaves you in debt for decades nor needs you to repay the loan within a few weeks of the timeline.
Be mindful of three things; the total cost of the loan, the monthly payments, and upfront fees. Also, make sure you meet all prerequisites required for the loan approval.
Preferably, you must shop for the rates and compare the characteristics mentioned above with a minimum of three different loan lenders to find the best personal loan that fits your situation.
