Points to Consider when You Compare Rates on Loans
You never know when you may face a challenging situation and need financial assistance. It could be a health-related issue, urgent need to travel, marriage in the family, or some urgent family requirement. This is why there are several lending institutions available to give you access to loans as per your requirements and repaying capacity. Applying for loans may seem intimidating and by educating yourself it will become a lot easier for you to manage. You can find various online loan comparison tools that will help you to compare and narrow down your search. Some of the key things that you need to consider when comparing loans are-
Borrow Only What You Can Repay
Whether you are looking for a home loan, car loan or any other personal long term or short term loan, borrowing has become much easier than ever online. Nor you do not have to make multiple visits to your bank to get the loan you need. However, before you apply you should first have a repayment plan ready so that the loan does not become a burden. Basically, your monthly loan EMI should not exceed 40-50% of your net monthly salary.
Add Up Your Borrowing Costs
Ahead of applying for a loan it is important that you understand all the cost associated with the loan and not just the EMIs. Make sure you understand the price that you will have to pay for taking a loan. Generally, the additional charges that you will have to pay include loan processing fees, pre-payment fees, and foreclosure charges.
When comparing the loan rates, it is important that you check the APR (Annual Percentage Rate). It should not be confused with the interest rate of the loan. Usually, APR is higher than the fixed or variable interest amount that a loan offers you, because along with the interest rate it also takes into account additional fees such as application fee and length of the deferment period. At times, lenders may provide you with an attractive interest rate, but they may not mention the fees found in the fine print. Therefore, the APR system was introduced by the government to protect individuals from bad loan practices followed by the banks. Loans are huge investments and thus using the APR is a better way to find out the real costs of loans. Besides, finding a lower percentage means you will be paying less in the long run.
Usually loans have very specific terms that can only be found in the fine print, which most of the time people ignore and never read. When applying for a loan, one thing that you should never ignore is whether or not the loan terms have a repayment penalty. Many lenders may also change prepayment penalties. Therefore ahead of applying for a loan, make sure you go through the repayment plan carefully. Choose a loan term to pay off your debt that suits your repayment ability. Repayment terms can vary from one to several years. Suppose you signed a loan that you need to repay in 10 years times and if your lender has an enforced repayment penalty, you will be penalized for paying off your debt before those 10 years are over. This is because when you off your loan earlier, the lender will be losing money they could have gained in interest rates. Considering repayment penalties is important as it is always better to be safe than sorry later.
It will be easy for you to determine if the loan you are applying for has any hidden charges when you comparing the APR and you understand the difference between the interest rate and the APR percentage. Check for the fees mentioned in the fine print. It will include details about origination fees, loan application fees and disbursement fees. If you are not aware of the extra fees that you are charged, it could cause your loan to be a lot more expensive than your expectation.
Considering the above mentioned points when you compare the loan rates will help you to easily find out the loan deal that best suits for you.