Personal loans can be a great option when you need extra cash for emergencies, a vacation, medical bills or any other expense. Some people often compare personal loans to trail maps. When a trail map is used correctly, you will reach your financial destination with ease. If you use it incorrectly, you may find yourself falling deeper into debt. As with many other types of financial decisions, the decision to take out a personal loan should not be done without fully weighing the pros and cons. To stay safe, consumers need to know the potential hazards they can present.
According to Finance43, potential personal loan hazards to watch out for include:
- Taking Out A Loan Out For The Wrong Reasons
- Accepting First Loan Offer You Receive
- Not Reading The Fine Print Before Accepting Terms
- Taking Out A Loan For More Than You “Need”
- Choosing The Wrong Type Of Personal Loan
Taking Out A Personal Loan For The Wrong Reasons Can Be Risky
Before you take out a personal loan, it is important to explore each of your options. Depending on how much you need, consider asking a friend or family member if they could lend you some money. Another option is asking your employer if they could advance you a portion of your next paycheck early or offer you extra hours at work. Before borrowing money or applying for a personal loan, ask yourself how badly you need that money. It is always best to borrow money for the right reasons, not because it is easy to get.
Accepting The First Personal Loan Offer You Receive
Consumers have more power with their loan options than ever before. Because of the vast information we have available at our fingertips online, it is important to research and compare different lenders and loan options before settling on one. Never settle for a loan if you do not like the terms the lender is offering. Take your time shopping around so that you can find the best loan you can qualify for with rates you’re happy with.
Don’t Skip The Fine Print
Oftentimes, lenders will try in pressure customers into signing for the loan quickly before they have time to fully understand the terms and conditions. They’re trying to get customers to miss certain details about fees and other charges. Before you sign for a personal loan, be sure you take your time reading the entire contract before signing it.
If a lender tries to pressure you into signing before you are ready or had a chance to read the fine print, consider that a huge red flag. Always ask a lender for clarity if you don’t understand something in the terms. It is important to understand what you are getting into before you sign on the dotted line.
Top Points To Understand Before Agreeing To A Personal Loan:
- The interest rate of the loan.
- How long the loan term is.
- How much each of your payments will be.
- Is the APR a fixed rate or variable rate?
Accepting A Larger Loan Amount Than You Need
Many lenders use a tactic that involves getting customers to accept a larger loan amount than they need. This will often lead to more money spent on fees and interest and higher monthly payments. Before applying for a personal loan, it is best to sit down and figure out the exact amount you will need. Do not let a lender bully you into taking more than you require. Additionally, it helps to figure out your budget in order to see how much you can afford in monthly payments.
Watch Out For “Risky” Personal Loan Alternatives
When researching personal loans online, you may come across other types of loans such as title loans, payday loans and pawn shop loans. Each of these is considered high-risk options that can be very expensive. These types of loans are labeled as predatory. Each of these options comes with significantly higher interest rates than personal loans and are set with unreasonable terms. With title loans, you’re required to put up your vehicle as collateral for securing a short-term, high-cost loan. It is best to avoid these types of lenders.