When looking to apply for a loan, it pays to stay in the know to avoid costly mistakes. A couple minutes of reading might just help to avoid some expensive ‘lessons’ about borrowing and managing a loan. Hindsight is usually 20/20 but knowing ahead is better.
When looking at loans, comparing and managing them, there are a few things to keep in mind so that you don’t come across issues later.
Paying on Time
When it comes to loan payments, make sure you are not late. Some lenders report back to credit bureaus and late payments will mean your credit score will take a hit. This can be as much as 180 points and take a long time for your score to recover. Since lenders look at your credit history, which is almost as important as your score, having a missed payment might affect your chances of being approved in future, or increase the interest rate offered.
Read the Terms
When considering online loans you should always read the loan agreement and terms before you commit and sign. You want to ensure that everything is clear, payments are understood, and that you don’t find surprises like prepayment penalties if paying off early or other fees that might not have been mentioned. Yes, it’s as interesting as watching paint dry but the cost of not doing it could be huge. It is required by law in Canada that a lender discloses within an agreement the amount being borrowed, term, interest rate, annual percentage rate (APR) along with other charges, fees and details.
Compare Rate and APR
When you are looking at a loan agreement you want to look at the annualized percentage rate (APR) along with the interest rate. Using the APR number is the best way to compare loans and the cost of borrowing as it includes fees. You might see a lender with a lower interest rate, but when you compare APR and discover additional costs, it isn’t the lender with the lowest rate that’s always your best option. An old trick that unscrupulous lenders used to use was to charge a low rate but more than make up for it by charging fees. Regulators made them disclose the APR so that borrowers would be able to compare loans with varying fees.
When you need to borrow a personal loan, installment loan or even a payday loan, it’s important to use good judgment and borrow responsibly. Avoid borrowing more than you need. Some might think “well I might as well get more for…” and increase the amount of the loan request, but borrowing isn’t cheap. You’re best off to request only what you need at the time.
For more insights about applying for loans and what to know, we have lots more at GoodCheddar to help you with finding the right options.
- How to Borrow – Avoid These Loan Mistakes
- What Credit Score is Needed for an Online Loan
- What Lenders Look for When You Want to Borrow
- What Some Lenders Don’t Tell You (Or Want You to Know)