One of the best options for people looking for a financial boost is a personal loan. The loan terms of a personal loan are quite simple. These loans also typically have attractive interest rates.
Personal loans from a West Valley lender can, however, leave you in a financial mess if handled carelessly. Avoiding loan traps is the only way to avert costly mistakes. Here are the typical traps most borrowers fall for when taking personal loans.
1. Opting for Precomputed Interest
This is a trap designed by some lenders to guard them against early repayment. Regular loans require you to pay the interest accrued since your previous payment. Should you hence repay your loan early, you only pay for the increased interest.
In a precomputed interest, however, should you repay the loan early, you still pay the total interest you should have for the entire loan period.
2. Taking Loan Insurance
Many personal loan lenders sell their borrowers insurance to cover losses in case you miss payments. The two common loan insurance types are employment and life insurance. These insurance plans are quite expensive and have several conditions and terms attached.
It is hence better to avoid them altogether and opt for another lender if the one you choose insists on insurance.
3. Ignoring the Origination Fees
Most personal loan lenders have an origination fee, so you can’t avoid this. Base your decision on the loan’s APR rather than the interest rate as the APR includes your origination fee.
Since the origination fee is deducted from your loan amount, factor it in your loan application amount so that you do not get less money after closing.
After getting your personal loan, ensure you use it wisely and for its intended purpose. Repaying a loan that did not even help you in the first place can be at the very least, very frustrating. Make your payments on time to live a debt- and stress-free life.