Loans can be expensive, but they sure can help you in a situation when you need a lot of money in a short period. Besides, they are easily accessible, especially in the case of online loans. Taking loan from lenders might be a big tension as at the end you have to repay that money but for a time period when you really need money, you can majorly rely on loan application.
However, a lot of times people get a personal loan when they don’t really need one. Plus, it doesn’t help that it is hard to decide which reasons are valid for getting a loan in the first place.
One should always be careful about taking loan. Let’s look into some do’s and don’ts you should keep in mind while taking Loan.
Do: Budget Ahead of Time
Think about whether you would need the loan if it was payday, before the applying for short-term loan. If the answer is no, this would mean that you should be able to repay a significant portion of your loan on your next payday. Ideally, you should aim to repay your outstanding loan as soon as possible.
Don’t: Take more than you need
Short-term high-interest loans are not a solution for long-term financial health. These loans may be useful during a temporary cash shortfall and you need quick access to funds. If you take out a loan, make sure you only borrow the amount you require.
Suppose you can qualify for up to Rs.10 lakh, if you only need Rs.6 lakh, it’s in your best interest to only take Rs.6 lakh. Otherwise, you may end up spending the extra cash on unnecessary things and will only rack up more interest and fees.
Do: Pay as Soon as Possible
Before taking loan, you will want to make sure that there are no penalties for paying off your loan early. With the exception of Payday Loans, other forms of short-term credit like Installment Loans have longer loan terms. Open-end forms of credit such as Lines of Credit may not have set repayment amounts, but you should repay as soon as you can to minimize the cost to you. Longer you carry a balance with the lender, the more interest and/or fees you will pay over the term of the loan. It may feel more expensive to pay off your entire loan at once but it can save you money in the long run.
Don’t: Use a Loan to Pay off Another Loan
Loan cycling is the term used to describe the routine of using loans to pay off existing loans. Loan cycling is a dangerous habit as consumers will seldom have enough money to cover the interest incurred through the term of their loan. Once caught in a cycle of high-interest debt, it is difficult to get out. This is because often a so much of your payment is going towards interest, rather than reducing the principal. Consider other lower cost options before taking out a high-interest loan to repay an existing loan. If you are having significant financial trouble and need professional assistance, contact the National Foundation for Credit Counseling.
Do: Understand the Terms and Conditions
When people are in a rush, they tend to do things like forget their passport on the way to the airport or leave their coffee mug on the roof of their car. If you’re going through an emergency or a stressful time when you’re taking loan, it’s easy to miss important details or skip over vital information. Formal loan documents may be long and filled with legal jargon, but it is important to read the document to understand your loan terms. Be sure to also read your lender’s plain language Rates & Terms and FAQ pages for your state and loan product to understand how your loan will work. Call the lender and ask as many questions as you feel necessary before taking out the loan.
Don’t: Only Make Minimum Payments
Minimum payments are the lowest required payment for your loan to keep your account with the lender in good standing. These payments may be comprised only of interest or make only a very small contribution towards your outstanding principal. If you have available funds, ideally you should make additional payments towards your principal. Making the minimum payment makes the most sense when you truly cannot afford to pay more. Don’t make a habit of it, as months will go by and you’ll be left wondering why you still owe the lender a significant amount of money.
Do call your credit card company
Many people don’t realize it, but you can call your credit card company and ask them to lower your rate. They might say no, but most have hardship programs and they may be willing to help you out. It would cost them a lot less to lower your interest rate by a few points than it is to engage in collective action.
Don’t put your assets at risk
Most alternative lenders don’t require collateral from the borrower. This is good news for all want to take loan or small businesses who want financial help to grow as they don’t need to put their assets at risk.
To sum up
We all know that taking loan is generally a tension even if they help you in the needy time. So, don’t make it worst by being careless regarding loan application. Follow these do’s and don’t which is given above while taking a loan and there will no further confusion about loan application.