Although I’m not a fan of taking on debt for things other than student loans, buying a house or maybe a car (I’m not sold on doing that though and would prefer to buy a cheaper used car), I’d be naive to think that your professionals won’t be taking on loans. If you must take out a loan, it may be a confusing process, especially if it’s your first time. You may find the whole process both confusing and daunting. If you are applying for a loan, I’d prefer you to do it wisely, affordably and not in a way that shackles you financially! Let’s explore a few common gotcha’s for taking out a loan:

You’re Not Always Given the Advertised Rate

The rate that you see advertised on the loan will probably be the typical rate. A lot of loan companies use a strategy known as risk-based pricing.  This means that if you do not have a solid credit history, or if you don’t have a credit history at all then you may have to pay a much higher interest rate. You may even find that you are required to take your loan out over a long period of time too, and if this is the case then you’ll be paying more too. Some loan providers will ask you to go through a notary, and if this is the case, it’s worth checking out Shannon’s notary website. So, if what the lender is showing you isn’t what was advertised, ask why. If it’s not a good answer, keep shopping!

Credit Cards Could Be Better

If you only need to borrow over a very short amount of time, such as 12 months or less then it may be a better idea for you to get a credit card instead of going through the process for applying for a loan. Of course it’ll depend on the interest rate offered by your credit card and what you can get from a lender. Depending on the credit card, you may have a 0% or low interest rate, which could make sense for your situation. When you do this, you will be able to take advantage of a 0% interest rate and you may even find that you can save a ton of money this way. Please note though that interest is interest and it’ll cost you until you pay it back!

It Could Cost to Pay Back Early

A lot of loans will charge you for paying your amount back early. The main reason for this is because the lender will be missing out on a huge amount of interest. If you are borrowing a large amount then the early payback charge will be even more, so you need to check this before you take out your loan. If one provider is going to charge you then that doesn’t mean that every loan provider out there will, so do your research and take your time. If you can find a lender offering no penalty for doing so, that’s definitely advisable.

Hidden Fees

It’s so important that you look through all of the terms and conditions for a loan before you go ahead and apply. The main reason for this is because there may be an arrangement fee or even an administration fee. This can cause you major issues if you are not careful because it may get to the point where you are unable to make the minimum payment. Your loan provider should always be transparent about this and they should also talk you through what happens if you are not able to make the standard payment.

Variable Rates

Rates on a lot of loans tend to be fixed, but there are some loans that are based on variable interest rates. If this is the case for the one that you’re applying for then you have to make sure that you understand the terms. Usually, variable rate means that the interest can increase at any time, so if you are not careful with when you pay off your loan, you may find yourself in a bad situation. Look for loans with fixed interest rates so you know what you’re getting into!

If you must borrow money, please be smart about it and watch out for these gotcha’s! Also, try to get your finances in order, pay off the loan quickly and get back to a good spot financially!

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