While personal loans are helpful for clearing debts, particular care must be taken when choosing which loan to go for. With the vast amount of loans to choose from, you could be tempted to simply go for the one with the lowest interest rate. While low interest rates are good, there are other factors to consider which may even override the attractiveness of the rates. Here are three things you should look for before settling on a personal loan.
Payment Holidays? Where?s The Catch?
This a catchy feature we often see attached to not only loan products, but also to cars for sale and furniture. Get it today and pay nothing until three months? time. Many people meet such offers with glee, and go on to take advantage of (what they think is) a great offer. Now that is a mistake! These loans will most times start to accrue interest from the very first day. The danger here is that the borrower may mistakenly think that he or she can go on a spending spree because they have a sizable sum of cash at their disposal.
Never take such an ad at face value. As is usually the advice when signing on the dotted line, read the fine print. If the terms and conditions of the loan do not explicitly state that no interest will be charged for the period advertised, you will be charged. In such a case, ignore the payment holiday offer and start making payments on the loan from the very first month to avoid any hiked interest.
Fixed Rate Or Variable Rate?
Select a personal loan that carries a fixed rate and not a variable one. Fixed rate interest allows you to repay the loan in equal installments with the interest remaining the same throughout the term of the loan. A variable interest rate does not remain stationery, and places you at a disadvantage should it increase rather than decrease. Even in cases where the interest rate does decrease, unfair lenders will hike the rates just the same to exploit their clients and make a profit.
With a loan that carries a variable interest, you will be in a disadvantaged position not knowing how much you will be required to pay from month to month. This sort of uncertainty is not conducive to good budgetary practices, which is crucial in your bid to manage your money and become debt free. Pay particular attention to the terms and conditions that relate to interest rates.
What About Redemption Penalties?
Always read the small print. It is something that is really annoying and time consuming, but ignoring it can come back to haunt you. Redemption penalties are one of those elements that are usually well hidden in the fine print. These penalties may stipulate that you will be charged if you try to pay off your loan early. You can be charged as much as one months? interest for trying to pay early. There are lenders who do not apply this charge to their terms and conditions. Spend some time to seek out a lender who does not add redemption penalties.
Similar to any legal document, personal loan documents should be thoroughly scrutinized for hidden terms and conditions before you sign on the dotted line. A little extra time of scrutiny can save you great emotional and financial pains later on.
Author biography / Writer information : Written by Peter Coppola, an independent researcher and financial expert. He enjoys sharing his tips and insights on various personal finance blogs. Click the link to find out more about Easy Finance Home Loans.
Source: http://www.ericfinance.com/things-personal-loan/
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