A loan is a major financial decision that should not be taken lightly. These are six things you should know before you apply for a loan.
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People are increasingly turning to personal loans for emergency funds, to pay medical bills, and consolidate credit card debt. With no savings available and rising debt levels, it is becoming more difficult to save money.
A loan is a major financial decision. It’s important to make the right one. These are six things you should know before taking out a loan.
Before you take out a loan, it is important to understand why you need money. Borrowing money from gladloan.com can be a significant financial decision that can either help or harm you, depending on how you handle it.
Your home mortgage is the most significant loan you will ever take out. A loan might be worth the cost if you have the means to pay a substantial downpayment on a house that is within your means.
What about personal loans?
According to Finder 47% of respondents took out a personal loan for bills or emergency funds. It is not ideal to borrow money to pay for medical bills, a flood basement, or a car that has been damaged. I recommend saving up first.
However, 69% of Americans don’t have $1,000 saved for an emergency (CNBC). This is a deep-rooted problem that we need to address. If you need to borrow money for an emergency, follow these four steps.
The largest portion of people surveyed by Finder indicated that they took out a personal loan to buy a vehicle (31%). Many people overlook to look at auto loans (even if they are offered by the dealer). If you do your research, however, a personal loan may be an option.
If you have the funds and the need is not urgent, but you are able to wait a few months or longer to get it, do it. To help you break down the cost of your total expenses into smaller monthly payments, I recommend PocketSmith. This budget will be used to cover the more expensive expense. This is a smarter financial move that will allow you to save money for the things you really need.
There are many options available depending on the type of loan you require. The fastest and most efficient way to obtain a personal loan is to visit the bank with which you have an existing relationship. Sometimes, they will approve your loan application on the spot if you sit down with them. Your loan will be with the same bank so it is easier to manage the payments.
To save money, however, I encourage you to shop online. Many online lenders offer personal loans at great rates. Credible and Fiona are two of my favorite places right now.
Fiona offers low rates for student loan refinances. You simply need to fill out a form. The form asks for your contact information, your credit score, how much money you need and what purpose you require it for. Fiona then pulls a list of offers from multiple lenders for you so that you can select the best deal for your situation. Fiona earns money by referring clients to lenders. The lenders then compete for your business. You will get the best rate possible on a loan this way.
Credible works the same way. Credible allows you consolidate federal and private student loans. It also offers loans with a cosigner, which is something that many other services don’t offer. Credible also offers personal loans and mortgage refinancing. They even assist you in comparing credit cards. Credible also offers other financial options that can help you improve your finances while you work to reduce your student loan balances.
Once you have determined the reason you need the money, and decided that obtaining a loan is in you best financial interests, it’s time to consider how much you can afford (and repay).
It is difficult to define afford. It doesn’t necessarily mean that you can afford the monthly payments. A Harvard study found that almost 40 million Americans live in homes they can’t afford.
Similar cars exist. Bankrate’s study found that the majority of families cannot afford a new car. AAA however, showed that 64 million people would not be able to pay $500 or $600 to repair their car.
These statistics are not meant to discourage you from getting a loan. However, I encourage you to reconsider your view of afford.
First, ignore the APR for a second. This is often the first thing a loan originator will try and sell to you. It’s an easy way to quickly compare loans.
The APR is not the only important thing. Sometimes called the TAR (total amount repaymentable), the TAR is the total cost of the loan. This is the total amount you borrowed and the interest you will end up paying over your loan’s life.
This is because an APR can fool you. Let me give you an example. You have two options if you need to borrow $10,000.
- Option A$10,000 at $5.00% APR for five years (monthly payment $188.71).
- Option B: 10,000 at 6.00% APR for three years (monthly payment $304.22).
Which financial decision is better? Option A offers you both a lower APR, and a lower monthly cost. However, Option B is the better deal. This is how the output looks using an amortization calculator.
Option A is more expensive at 11,322.74 while Option B costs only $10,951.88, a savings of $370.86. Although this may seem like a small amount, as your loan amount increases, and your term gets longer, these gaps will continue to grow.
When you think about how much you can afford, don’t forget to consider the monthly payment. But, most importantly, remember the total amount that you will end up paying back.
Once you have a clear picture of your financial situation, you can start to determine the type of loan you are eligible for. Enter your credit score.
Your financial health and well-being are dependent on your credit score, and credit history. Without credit–specifically, good credit–you can kiss low rates, low payments, and overall savings goodbye.
It was shocking to me that 45% college students didn’t know their credit score. In most cases, a college student is at the beginning of their credit history. This would make it the best time to set your level and see where you are. It’s not only college students. MoneyTips discovered that 30% in the general population don’t know what their credit score is.
You need to be aware of your credit score as well as your credit history. It’s very easy to do this. I recommend free tools such as Credit Sesame and Credit Karma. As a consumer, however, you have the right to a free credit report from each credit bureau (Equifax/Experian and TransUnion) each year.
Monevo is a great place for loan searches once you have a good understanding of your credit. Monevo lets you search for personal loans up to $100,000. It uses a comparison tool that allows you to quickly compare personal loan offers from different lenders.
Make sure to fully understand the terms before you sign the paperwork for your shiny new loan. You should know the annual percentage rate (APR), the total cost of the loan (mentioned previously), and all fees that may be incurred throughout the loan.
These are some hidden fees and costs that you might not be able to discuss or show when you apply for a loan.
- The loan origination fee is a charge that can be applied to mortgages. However, it can also appear on personal loans or auto loans. This is the fee that the loan provider charges to process your application. For example, some lenders charge origination fees of 1% of the loan value. The $10,000 loan that we have discussed would cost $100 to open. Except for home loans, I recommend that you avoid any loans with origination fees or processing fees. You can ask to have them waived.
- Failed payment fees – A fee that is charged when you don’t have enough money to pay a payment you made. This fee may be charged by some lenders.
- Prepayment penalty – This is a fee the loan processor will charge if the loan is not paid on time. This is a common practice for personal loans and is a way lenders can get more interest. Make sure that your loan does not have a prepayment penalty.
- Late payment fees-This will not only affect your credit score but will also cause problems with lenders. Most lenders will charge a fee for late payments. This fee can sometimes be waived for a once-off courtesy. However, it should not become a routine.
- It is important to understand how interest on a loan is calculated. Interest compounded adds to the interest you already owe while you pay off the loan. This cost is usually calculated monthly or daily. Therefore, it’s important to make additional or early payments in order to reduce the cost.
Some loans have pre-calculated interest, such as student loans. This means that interest is already included in your monthly payment. You’ll be charged the same interest no matter how early or little you pay. Therefore, you might not be able save as much by paying off the loan early.
To make sure that you fully understand the terms of your loan, you need to carefully read all documentation. You can’t break a loan contract.
There are many options available depending on the type of loan you require. It is the easiest and fastest way to obtain a personal loan. Sometimes, a bank will approve your loan application on the spot if you sit down and discuss it with them. Your loan will be with the same bank so it is easier to manage the payments.
To save money, you should shop online. There are many online lenders that offer personal loans at great prices.
Marcus By Goldman Sachs make it easy to compare quotes and find the best deal. You will only need to answer some questions about yourself and what you are borrowing. Then you’ll receive a quote within minutes. For anything, you can borrow up $40,000, including to take a vacation, consolidate your debt, and make major purchases. Marcus offers a discount of 0.25% on AutoPay loans. You’ll also appreciate the fixed APR rates throughout the loan’s life so you can plan accordingly.
Marcus by Goldman Sachs has no fees and there are no prepayment penalties. This means you can pay your loan off as soon as possible. Marcus will even reward you for making your loan payments on time. After 12 consecutive payments, Marcus will allow you to defer a payment.