Millions of individuals worldwide require quick loans every so often. The availability of online loans in the Philippines and globally has made it easier to access a loan when necessary.
However, with the many attractive online loans available today, many individuals don’t consider the important factors, leading them to make mistakes that will negatively affect their financial reputation.
Below is a comprehensive guide on the mistakes to avoid when taking out quick loans.
Not taking time to read the loan’s terms and conditions
This is a mistake that most borrowers make when taking quick loans—while it might sound like a tedious task, thoroughly going through a loan’s fine print can go a long way in helping an individual make an informed decision on whether or not that loan is ideal for them.
So, what information is included in a quick loan’s terms and conditions? The main one is the interest rate and extra fees.
This is the interest the borrower will pay on the loan they took and the additional fees the lender charges them. It could be origination fees, late repayment penalties, and prepayment penalties, to mention a few.
Knowing about these charges will not only enable a borrower to decide whether or not they can afford that loan, but it also enables them to determine the amount they need to borrow.
This is because some lenders choose to deduct charges, such as the origination fee, from the initial loan amount. So, the borrower will receive a lesser amount than the applied for. This may lead them to take a larger amount to cover their financial needs.
Another important piece of information in most online loans’ fine print is the repayment period. This is the time the lender gives the borrower to repay their loan.
Knowing a particular loan’s repayment period enables an individual to decide whether or not they can afford to pay back that loan within that time frame.
Taking a loan that you cannot pay back
Quick loans are there to help individuals take care of urgent financial needs when they are capable of doing so. However, a person taking out a loan when they aren’t sure how they’ll pay it back is a huge mistake.
Late loan repayments can not only affect a borrower’s credit score, but they may also end up paying late repayment penalties, which is an added expense.
So, individuals need to examine their income and be 100% sure they can repay the loan.
Taking a Loan with high-interest rates
Another mistake many borrowers make when taking quick loans is not looking at their interest rates. A quick loan’s interest rate significantly determines how much an individual pays back the lender.
Nowadays, many personal online loans have attractive offers, such as a 24-hour loan approval process that diverts people’s attention away from important things like interest rates. And in most cases, these lenders charge high-interest rates.
So, what is the ideal interest rate for personal online loans? Most loan experts point out that a quick loan should have an interest rate of 10%-20%. This depends on factors like an individual’s credit score, repayment period, and loan amount, to name a few.
Not checking your credit score
Almost all quick loan lenders check their borrowers’ credit scores during the loan qualification process. An individual’s credit score determines many things, from the loan amount they qualify for to the interest they’ll pay.
Typically, the higher an individual’s credit score, the more amount they’ll likely qualify for and the less interest they’ll pay. But what if a person has a poor credit score?
The good thing is there are online loans available for people with bad credit scores. However, individuals must keep in mind that their interest rates are higher, and the lenders may request a co-signer.
Not knowing whether the quick loan is a fixed-rate or a variable-rate loan
This is also a major mistake people make when taking out personal loans. A fixed-rate quick loan is one with a fixed-rate interest rate meaning the borrower will pay the same interest throughout the repayment period.
While a fixed loan has a high-interest rate, it is stable, allowing individuals to know what they are expected to pay and enabling them to budget their finances accordingly.
Variable-rate personal online loans are those with variable interest rates. While their interest may be low initially, there’s no guarantee that it will stay that way. This makes it difficult for borrowers to budget how to repay their loans.
So, individuals should not just take out a loan because it has a low-interest rate. Instead, they should read through its terms and conditions document to determine whether or not it has a fixed or a variable interest rate.
These are just some of the many mistakes to avoid when taking out personal online loans. At the end of the day, quick loans are there to help people and not stress them out. So, individuals should consider all the necessary factors before applying for one.