In this modern world, there may be hardly anyone living without a debt against their name. Therefore, if you feel that you need one for any specific reason, do not think you are alone. In fact, a loan can not only ease your financial stress significantly but will also provide you with a lot of other inherent benefits such as tax deductions.
However, you must be knowledgeable enough about the consequences of taking a loan and the pros and cons of it. Loans are useful as long as it is payable by you. Otherwise, you will fall into a debt pit and the monthly bills will haunt you even in your dreams. You will have to answer to collection calls and even end up losing the assets that you may have purchased on loan.
Therefore, personal or student loan, auto or any other consumer loan, all will have severe consequences on your financial health if you cannot manage it properly and efficiently. It is therefore required to conduct extensive research before you sign on the dotted lines to be sure that the debt does not become a tool to the guillotine. If you are unsure and novice regarding the financial market, it is best that you consult with an expert credit counselor before you avail a loan.
Choosing The Best Provider
Knowing the fact that there are different types of loans and loan providers available in the market, it might be a bit confusing to you at times to choose the right one from such a huge list. To make sure that liberty lending is actually liberal and will not put your financial freedom in jeopardy, you will need to consider a lot of factors so that you can make a better decision.
Each type of loan will have a lot of difference from the other in terms, conditions, payment schedules, time limits, the rate of interest and the equated monthly installments or EMIs.
Therefore, you will have to do a lot of homework to find the best loan that is most suitable to your needs, your affordability and budget to fulfill your purpose.
It is paramount that you know the fundamentals of loans, the basic features, pros and cons before finalizing on a loan type and provider.
Term Of The Loan
The number of years your loan will be spread is called the loan term or tenure. This is a very important and significant factor to consider while choosing a loan. The entire loan amount will not only include the amount borrowed but will also add the total interest accrued on it for the entire period specified.
This means that larger the term in years lesser will be the monthly payments and a shorter loan term will increase the monthly bills.
However, you must be very careful when you choose a loan for a longer period or extend your short-term loan by a couple of years. If you estimate the amount correctly, then you will often find that the amount that you finally and collectively payback is much more than what you expected to save. It is actually the simple business principle where profits increase with volumes.
Rate Of Interest
There are two types of rates considered while calculating the EMIs of a loan namely, the rate of interest and the annual percentage rate or APR.
The rate of interest is the most common term you will come across used by the lenders. Ideally, this is the real income of liberty lending. This is the excess amount that the creditors charge from the borrowers for their service and help they provide you with the money.
This rate of interest is compounded annually and different percentages are fixed for different types of loans and different lenders can charge a different rate of interest albeit within the specified limit.
However, you may opt for a fixed or floating rate of interest on your loan. In fixed rate, you continue to pay the same rate of interest throughout the entire loan tenure even if the prevailing market rate of interest is higher.
In a floating interest rate arrangement, you will pay interest on your loan as per the prevailing market rate which may be higher or lower than the rate at which you originally borrowed the amount.
It is always better to obtain a loan at a fixed rate because the rate of interest keeps on fluctuating and sometimes may be very high causing problems to you to manage your debt.
The Annual Percentage Rate
On the other hand, the annual percentage rate or APR is another important factor to consider while choosing the best loan. This APR is very much different from the rate of interest that you will usually counter with. The rate of interest consists of only the basic interest but the annual percentage rate includes all fees and points including fees for origination.
It is therefore needed to weigh the available loan options on the basis of the APR especially if you opt for bigger loans such as a mortgage loan. When you meet a lender, make sure that you ask about the APR and not only the rate of interest.
Monthly And Other Payments
Perhaps one of the most significant things to consider while choosing a loan is the payments that you have to make every month. It must be well within your budget and affordability. For this, you will need to know and consider the term of the loan, its amortization terms and balloon payments.
This is the amount that remains at the end of the loan term that you need to pay up in full in order to clear of the loan. If you cannot make these payments, you may need to refinance or even take a consolidation loan to make arrangements for funds.
You must also consider the monthly bills that you have to pay. It must not be high so that you have to stretch to find the means to repay the loan whether it is an interest only loan or a low monthly payment loan.