10 Things to Know Before Getting a Loan
The system of lending money on interest basis has been in practice for centuries. Earlier there used to be no proper procedure or any solid record and thus the money lenders imposed as much interest rates as they could. Later, banking system developed and now there is a proper criterion as well as a well-defined procedure to get a loan sanctioned.
Loans are practically available for everything. From buying houses (Home loans) to meeting your own luxuries(Personal loan). Loans have thoroughly helped us to raise our standards of living. You can just lend a large amount of money from the bank and then just return in the form of easy installments with some nominal interest rates.
One thing that the people forget is to take some necessary precautions before getting a loan which then leads to future problems. Here are the top 10 things to be kept in mind while you are going to the bank to get your approved:
1 -Lend smaller amounts:-
You are eligible for getting a large amount as the loan doesn’t really mean that you need to. Lend the money in smaller amounts so that it is easier to pay and does not put the burden on your daily routines. A larger amount will result in a higher interest and a longer time period. Thus, choose your loan amount wisely.
Also, the agents will insist you break down your installments into smaller amount so that you can pay them easily. Do not listen to them because a smaller EMI will mean that you will have to bear the burden for a longer period of time and this will result in you paying a higher amount as interest. Do not keep your EMI too low or too high.
2- Interest Rates:-
This is the first thing to look at when you plan to get any loan passed. People will insist you to go for the “variable” option but I would suggest you hunt for the word “static”.
Here is an article with which you can calculate interest rates.
Variable interest rates vary with the stock market and if in case the stock market crashes by a significant amount, your interest rates will shoot up instantly and may leave you in serious troubles if you are a common man.
Fixed ones, however, do not depend on market conditions and so the amount of interest you pay remains the same. In this system, you at least have a surety with regards to the amount you need to pay every month or year.
Be aware and do not carry away if people start praising the “variable” rate more. The market is not at all dependable. It reaches that crest in a second and may hit the trough in the next second.
3- Look for TAR and not the APR:-
APR stands for Annual Percentage Rate which is often used as a parameter for loan comparison. However, it is to be kept in mind that APR can be easily manipulated by the bank authorities.
Therefore, I suggest you compare the loans on the basis of TAR which means Total Amount Repayable which tells you about the final amount that you need to pay. Using the TAR value, you can find the yearly and monthly amount you need to pay and you can actually see if you can afford the loan or not.
4- The T&C column matters:-
Instead of searching for a better amount, you should search for a better Terms and Conditions policy. The T&C column will tell you about the support that the bank will give you under the following circumstances:
Full repayment of the loan early
Failure to pay the installment for a month or two
Change the amount of loan or installment within the repayment period
And many other user issues.
A good Terms and Conditions policy is hard to find and you must read this column in order to prevent any future confusions. One should always find such banks that do not impose additional interest when the debtor decides to pay the leftover amount altogether.
5- Look for other charges:-
While studying for the TAR, we must also pay attention to the charges that the bank imposes other than the interest. The other charges include organizational charges etc. and may affect the TAR value by a handsome margin.
Do ask the bank employee regarding the charges imposed(if any). If you feel that the charge is legit, then only agree to their terms else keep on asking questions until each and every query is rectified. This will ensure that the bank people do not blame you later for ignoring the extra charges imposed by them in case of any discrepancy.
6- Do look for Alternatives:-
Besides getting a loan from a bank, there are alternatives as well which can satisfy your monetary needs without actually costing a lot on your pocket.
For small amounts, you can prefer a credit card which has a considerably low-interest rate. Also, if you plan to use credit cards or loans to pay other debts, keep in mind that you choose the one that does not have a very high-interest rate and has a user-friendly “Terms And Conditions” policy. Also, if you attempt to pay the amount altogether, credit cards charge a lot less as compared to the bank loans. Credit cards also let you break the installments as per your comfort which is still absent in the majority of the loan terms.
Beware of the credits cards that say “0% interest fee”. These schemes are full of traps and hidden terms and include other charges that may burn a hole in your pocket.
8- Research and Compare:-
Never trust your bank. They may promise you the loan amount at the most reasonable interest rate because they already know that you would not try any other bank due to their long association with their bank.
What I suggest is that you must visit other banks as well and then compare at least the data from 8 to 10 banks in order to reach a conclusion.
You should keep in mind that it is your money and you’re the one who is going to repay the debts. Moreover, your bank is not going to accuse you of going to any other bank for a loan.
Thus, a proper research is necessary to know if you are going the right way or not.
9- The Add-On hole burners:-
Loans often come with many add-ons like price protection plans, penalties etc. These add-ons must be looked for in advance so as to avoid any ambiguity later.
People do not look into these columns and when the banks demand the add-on money, they argue with the bank employees stating that they were unaware of the fact beforehand. This creates a lot of mess for the bank employees as well as the customers.
10- Watch out for any schemes:-
Many banks offer a lot of schemes when you apply for a loan like Cashback Discount on foreign trips
Let me tell you in a simple language. These are nothing more than a ‘trap’. Just imagine, a bank that takes its lent money with interest, why would it pay for your enjoyment? The truth behind such schemes is that the bank charges a higher return rate and this extra cost is hidden in the name of organizational fees or any other form such that it seems legit. Or the case may be that the bank charges a higher amount when you opt for any such scheme.
Long story short, all I want to say is that you should be aware of such schemes because the terms of these are often very complicated for the user and the bank employees may try to fool you in order to ensure their profit. Stay away from any such gimmick and be a smart customer. Do not let the bank employees fool you and empty your pocket for no reason.
Keeping the mentioned points in mind while buying any loan will make the bank understand that the other person has done proper research and cannot be fooled easily.