Before you take the crucial decision to get a loan, what costs do you need to consider? What sorts of financial responsibilities does a loan borrower have to shoulder?
The American economy runs on credit. This never-ending cycle of borrowing and spending that lays one of the basic foundations of our community and culture. And we know it. Almost all of us had the need to borrow at some time in our lives. This fact is much accentuated by the importance we place in our credit scores.
The credit system has been around for more than a century. But this system of bargaining has become more and more prevalent during the past few decades, especially with the advent of the internet. You can find banks and lenders everywhere offering secured and signature loans at very attractive rates while various lending platforms have sprouted online. All these are making access to credit easier to people who need them – and those who think they need them.
To prevent yourself from falling into the temptation of taking on debt you don’t really need, or from rushing into a deal that you won’t be able to afford later, know these important lending costs first.
Get today’s rates. Click here.Interest rate
Interest rates can either be fixed or variable. With a fixed interest rate, your payment remains constant and unchanging throughout the life of the loan. Meanwhile, a variable interest rate resets after a determined period of time. Typically, fixed rates are higher than the initial rate offered by most variable rate loans. However, most people prefer to take on a debt with a fixed rate interest because of its stable nature. Variable rate loans, on the other hand, can offer strategic benefits when you want to take advantage of the lowest rates possible. If rates decline, you will have a good chance of even lowering your payments even more. But if rates increase, you can always choose to refinance into a new loan with a fixed interest rate to avoid the nightmare of skyrocketing interests.
Prepayment penalties
Some loan programs charge the borrower a fee for paying off their loans earlier. This is because interest charges are spread throughout the life of the loan and if the borrower decides to prepay, lenders risk losing those interest payments.
Before you sign on the dotted line, make sure you understand the terms of your loan, including agreements about prepayment. Although most people don’t think about it when they borrow the money, majority of borrowers actually end up looking into this option at some point during the stretch of their loan.
Click here to get matched with a lender.Investment-linked insurance
This is a type of insurance that shoulders the loan payments in case the borrower passes away. It’s a cushion that not everyone may think about but could be extensively helpful when needed. Grieving is already overwhelming; having to pay a huge debt on top of that would just add anxiety to their grief. Individuals who have no other adult relatives to rely on may explore this option. Beware of scams, however, as this segment of the insurance market is filled with shady operators.
Interest saver accounts
If you don’t want to prepay because of hefty penalties, you can opt for another tactic which is to put your excess money in an interest saver account. This account should be linked to the account you use to pay your mortgage. The lender deducts the daily balance available in your account and computes interest on the resulting principal amount. This strategy erodes your interest payments over time and you can withdraw from the account any time you want.
Never rush to a decision without fully grasping what a loan situation would mean for you. Balance out your great expectations with the cost responsibilities. Properly evaluate your financial capacity before pushing for the go button.
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