So yeah, getting a loan is a lot easier these days, thanks to technology and other factors. However, the ease with which you borrow the money is usually not the same as how you pay it back. This is especially true when the interest rate is so high that you now feel choked when repaying the loaned money.
So, is there any way to ensure you get the beste lån (that’s Norwegian for “best loan”, by the way) at all times? Well, the answer is yes. There are a lot of factors that you need to consider before you request a loan; considering these factors will assist you to choose the best loan while also ensuring you don’t get frustrated when paying back. Now, let’s discuss these factors…
1. The Loan’s Interest Rate
Loans are not free; you would have to give the lender the initial amount borrowed alongside an agreed interest. It is after all a business transaction and the interest is the profit of the lender, and so, it is often determined by the lender. Due to this, the interest rate should be one of your major concerns before you apply for a loan, because the rate varies with loaners.
Therefore, take your time to select through all the available lenders before you decide on one. The lender with the lowest rate should be your choice. Also, ensure you look out for hidden charges that may be presented in as processing fees, appraisal fees, administration fees, and others. Examine the entire expenses as some lenders may offer a low-interest rate only to top it up with these hidden charges.
Remember, you do not want to feel all choked up when it’s payback time, therefore, be very meticulous with your selection process.
2. What Type of Loan
There are numerous types of loans, from personal, to payday, to mortgage, home equity, student loans, and a lot more others. The type of loan you choose is often based on what exactly you need the money for; this is because all these loan types have their peculiarities and terms. For instance, a mortgage is best suited for when you want to acquire a house, and so is a student loan specifically for studies.
The time before you would be required to pay back the borrowed money can also be determined by the type of loan you select. Take a payday loan, for instance, your debt is expected to be paid back by your next payday. So, carefully explore all the loan types to find the one which would suit your need.
Personal loans are the most common types of loans; therefore, we will briefly describe them and discuss their major pros and cons…
Most personal loans aren’t secured, that is, you do not need collateral, and this contributes to its popularity. The terms of repayment may be between 1 to 10 years. And you can use it for whatever you choose to use it for, although, some lenders place restrictions on the use of the borrowed money. The interest rate is fixed, and so there is no chance of it increasing during the payment period.
You would be required to submit your financial and personal information; the process is quite similar to the process of getting a credit card. A credit check will be done; this can reduce the credit score temporarily. Click here to find out more about credit score and how it is calculated. If the lender is okay with your credit history, they will set the terms of the loan. And you will get funded immediately.
- Low-Interest Rates
The interest rate of personal loans is significantly lower than that of credit cards, the amount that can be borrowed is also quite higher.
- Managing it is Easy
Again, when placed in comparison with credit cards, managing personal loans is easier. This can help anyone that qualifies for a personal loan to streamline their monthly expenses while also saving money.
- It is Versatile and Flexible
With some type of loan, you can only do specific things with the borrowed money, take car loans, for instance, you can only use the money to get a car or a mortgage that can only be used to get a house. But personal loans are a lot more versatile, you can use them for whatever reason you want to, from getting a debt paid to settling medical bills.
- Other Loan Types may have Better Interest Rates
Could be due to its availability, or easy management, but this type of loan may have a much higher interest rate than the alternatives. And this is especially true if your credit score is bad or just fair.
- Other Fees Can Increase to the Borrowing Cost
If you are lucky to get a personal loan that does not have a high-interest rate, then, you may be confronted with the horrors of other fees (sometimes hidden). You would have to critically examine the payment terms. Some lenders may even charge a penalty fee if you pay up the debt before the agreed date.
Before you apply for one of these types of loans, ensure you consider all the advantages and disadvantages already discussed. It may be the best type for you if you require urgent cash since it is so accessible and can be processed in mere days. But you would also have to consider the other factors in this article before your final decision.
3. The Terms of Payment
How and when the lender wants the credit paid back should be at the top of your mind when you go scouting for a money lender. Is the repayment period convenient for you? Is the payment going to be in instalments? Understand that period for repayment is one of the determining factors of the loan’s total cost. How? Well, if the repayment period is long, the payment is stretched across the entire payment period – that is if the payment is done in instalments – this would make payment a lot lower. And likewise, a short payment period would result in higher monthly instalments that may be choking in the long run.
Also, do not fail to remit your debt (whether it is to be paid at once, or in instalments) on the due date, as it may result in an increased interest rate or the lender taking the collateral used in getting the loan.
4. Your Credit Score
The credit score of a person that applies for a loan is very important. The lender usually assesses the credit history of those who ask for loans to determine if they are eligible to be borrowed money or not. If there is any strain on the credit history, then, the application may be denied.
However, a person with a fair or bad credit score can still get a loan; however, any lender offering to lend money to such a person may request a higher interest rate. This is why you need to work on your credit score, settling all your minor debts and increasing your credit card limit is a sure way of rapidly improve your credit score.
5. Your Financial State
Except necessary, never take a loan beyond your current financial capability. If you borrow money that is beyond your financial state, you will end up badly hurting your finances. This is because; the interest yielded would have to come out of your pockets.
6. Do you Already Have Debt?
Your chance of getting the best deal is significantly reduced if you already have a debt that a certain percentage of your salary pays. However, if the percentage of your income that carter for the debt is not too high, then you can still get a good deal.
You may have issues if the debt collects above 43% of your monthly salary because most lenders will not approve you for a loan. And like with having a bad credit history, the lenders who are willing to borrow anyone with an income-to-debt ratio above 43% may demand a high-interest rate. So, one thing to do before applying for a loan is to reduce the ratio of existing debt s below 43%.
A loan is a great idea when you need money for something, but it can also be bad news when paying back becomes a bother. Some factors like your financial state, credit score, terms of payment, and interest rate should be considered before anyone applies to borrow money from money lenders.