Forewarned is forearmed, or so the saying goes, and when it comes to borrowing money, the more you know the better you will be at taking care of yourself and your family. Here are a few things that you should know but probably don’t know about personal loans.
The Zero Interest Loan:
Commercial lenders are in business to make money. There is nothing wrong with that, but if you borrow from a finance company or a bank, they will naturally want you to pay back more than they gave you. In some cases, much more.
Borrowing from a friend or a family member, especially for very short term loans, may allow you to get the money that you need without the interest payments that you don’t need. Just make sure that you can pay them back, or you may end up losing a friend.
Know where you stand:
Before a finance company will loan you money, they will most definitely find out all that they can about your financial situation, initially by running a credit check. In order to negotiate on even terms, you need to know what they know, so running a check on yourself before you apply for a loan is just common sense.
Personal credit checks are free. You can get one from each of the three major credit agencies each year.
If possible, run the check several weeks before you will be needing the money. This will give you the opportunity to improve your overall score by correcting errors in the report. The better your score, the better your chances of getting a lower interest rate when you apply.
Know who you are dealing with:
There are good companies, and there are not so good companies when it comes to making personal loans. Before you bind your family’s financial future to a loan company, find out how they do business. Check the business watchdog sites for complaints and negative comments. Look for companies which have a track record for dealing fairly with their clients.
It is rare these days for someone to have a solid relationship with one particular bank, but if you do, consider them first.
Beware of online loan sites:
The internet is a great place to find things that you need, want and just can’t live without. Loan sites are all over, promising premium interest rates and terrific terms. And some of them really deliver. Running loan services over the web allows a company to cut overhead and pass those savings on to the borrower. But the same rule about checking your vendor applies even more in the case of on line loan sites. Do your homework first.
The Pros and Cons of Payday Loans:
Payday loans are a controversial financial product where you make a very short term loan at a very high interest rate. The advantage to the borrower is very limited credit requirements. As long as you can prove that you have a job, you can most likely borrow anywhere between $100 and $1000 for up to 3 weeks. This can be critical if you need that money now to make a house payment or cover some other important bill.
The downside is that you will be paying a huge interest rate. In addition, it is easy to get into an interest only spiral where you continually pay the finance charge and ‘re-borrow’ the principle. Many customers of this kind of product end up paying back in interest as much as they borrowed in the first place, and more.