A personal loan can come in handy whether you need to sort out an emergency, acquire an asset or fulfill any other financial obligations. Like all other forms of financing, you must exercise discipline and repay the loan within the set time frame. Before you apply for a personal loan, here are 7 questions you need to ask.
- Is it a fixed or variable rate loan?
A fixed rate loan means that you will have the same monthly payments up until you finish paying back the loan. On the other hand, loans that have a variable rate can result in fluctuating monthly payments. Know what is suitable for you based on your financial capacity before you apply.
- What are the charges and fees?
Most borrowers focus on the principal and interest but forget that many personal loans also have additional charges and fees. For instance, you may be required to pay processing fees, which is typically a percentage of the total amount given.
- What’s the term of the loan?
Understand all the terms of the loan. For instance, find out how long you’ll be given to pay back the loan. Will you start paying it back immediately or there’s a window period offered? While some lenders can give you incredibly low interest rates, you may find out that they have terms such as origination fees which end up hiking the monthly repayments.
- What happens if you pay back earlier?
Institutions like http://www.libertylending.com/ may allow you to pay lower interest charges when you happen to pay back the loan earlier than the maturity date. Calculate the interest that will be charged when you pay the loan within different periods before you apply. This will help you to save money in the process.
- What if you encounter difficulties in repaying?
Though you shouldn’t take up a personal loan with the thought that you may not be able to repay it, it’s important to understand what your options are in case you default. Can the lender modify the terms of the loan? Do they offer arbitration if you have differences during the term of the loan?
- Can you offer better terms/interest rates?
A good lender should be able to allow negotiations with the customer. If you have a good credit score, find out if the lender can lower the interest rates or improve the terms of the loan. Always negotiate with a lender and compare what others are offering until you get a good deal.
- Is there any form of security required?
Some banks may require some form of security before approving a personal loan. This could be in the form of an asset such as a car or property. It could also be in form of your pay slip. They will need to review your bank statements for the past few months before approving the loan. Some banks even require a letter from your employer.