10 tips for taking out a loan online and what to be aware of
Latest posts by George Paunov (see all)
- 10 tips for taking out a loan online and what to be aware of - July 4, 2016
- How to identify online payday loan scams - July 2, 2016
- How fast is a payday loan? - June 20, 2016
10 tips for taking out a loan online
Life could sometimes be unpredictable. So you may find yourself in need of immediate financial. Even if you have never thought of it before, taking out a short-term loan online could be the best way to deal with many unexpected financial circumstances. Let’s look at some tips that will help you make better choices when you need to take out a loan online.
1. Look around
When it comes to taking out a loan online, it pays off to look around and compare APRs. The APR is an annual percentage rate that reflects the true cost of a loan by taking into account the interest rate, any other charges that may occur and the payment schedule. Even though your bank may say it offers preferential rates, you may still find cheaper loans available elsewhere.
2. Read the fine print
Before you apply for a loan online, make sure you ask for a full disclosure of all the loan’s terms and conditions and read the fine print. Different online loan companies have differences in the terms they offer.
See if the monthly payment and repayment terms work for you. There could also be fees for late payment. The lender is usually looking to generate a steady stream of interest payments from you over the period of the loan, so there could also be a prepayment fee or penalty for paying off your loan early.
3. Be careful with credit card consolidation
Taking out a loan to pay off credit card debts for more than one card and consolidating the payments is one of the most popular uses of online loans.
If that’s your motive for taking out a loan, make sure that you don’t ruin your original intention by racking up fresh credit card debts once you pay off the old debts and have access to fresh credit.
4. Make sure your credit score is on point
Regardless of the overall direction of interest rates in the market, your credit score could mean a significant difference in the interest rate you’re offered on your cash loan,
For example, you could be paying as much as 20 percent or higher with bad credit, while you could have a much better 8 per cent rate with good credit. This is why you should make sure your credit score is accurate and continue to be responsible for your use of credit.
5. Beware of origination fees
While some lenders seem to offer lower interest rates, you may find that they also tack on an origination fee which effectively increases your interest rate. That means the best online loan for you could be from a lender who offers a higher rate but doesn’t add on any origination fee.
6. Don’t bite off more than you can chew
Before you apply for a short- term loan online, think through your financial situation and how much you can comfortably take on. Some online loan companies will look to give you more than you can handle. This means you could end up borrowing more than you can actually afford and fall into a debt trap.
7. Be careful with automatic withdrawals
Some online loan companies offer borrowers incentives to provide access to their bank accounts for automatic withdrawals of their monthly repayments. In fact, they could set up the online loan terms as such and you would have to opt out of the arrangement. For example, you may find that you’ve to pay a fee if you prefer to pay by check. If you provide access to your bank account, you may find yourself out of money when you need it.
8. Know the risks of secured loans
Secured loans are cheaper than unsecured loans, but you take the risk of losing your home if you don’t keep up repayments. Secured loans are only offered to homeowners with equity in their property, meaning that the lender can effectively take charge of your property should you can’t repay your secured loan. So don’t sign up for a secured loan unless you’re absolutely sure that you’ll be able to meet your repayments as secured loans are basically more risky for you and less risky for the lenders.
9. Repayment difficulties
Find out about your options in case you run into difficulties with your repayments. Is there any way to modify the terms of the loan? Is the lender only open to arbitration if any differences arise or can you go through the court system?
10. Fixed or variable rate?
Should you go for a fixed or variable rate on your short-term online loan? Usually, you’ll start off with a lower rate on a variable rate loan and also be taking on interest rate risk. As interest rates rise, your variable rate will also rise, meaning that your monthly payments will be higher.
However, with a fixed rate loan, your repayments will remain the same throughout the term of the loan regardless of any interest rate movements.