Personal loans do not come cheap. Just because a particular lender advertises their loans offers as cheapest in the market doesn’t mean you should believe it. In order to ensure that your secured loan is not only cheap but also safe, understanding the cost of the financial product is key. Before you go ahead and apply for a secured loan, here are tips and tricks to keep in mind:
Know how much to borrow
There are different factors that affect the cost of your secured loan but before you get into the nitty gritty of your loan’s cost, you need to know how much to borrow first. The maximum amount you can borrow will depend on your security’s value and your income. But just because you can borrow the maximum loan amount offer doesn’t mean you should. Deciding on how much to borrow should depend on what your financial need is and how much you can afford for monthly repayments.
Know how long to borrow
To know how long your loan term is, you need to carefully plan your budget. Remember that secured loans require collateral. Once approved for the loan, you’re essentially putting your property at risk of repossession. To avoid losing your property, work out your repayment term in a way that you can realistically repay the loan for the duration of the loan term. Find out the maximum amount you can set aside for repayment and stick with it when applying for a secured loan.
Find out the interest rate
Interest rates vary from one secured loan deal to another. The rate of your loan will usually depend on a number of factors such as loan amount, loan repayment term, credit score and your home’s free equity. If you have a good credit score, for example, chances are high that you’ll be able to avail a cheaper secured loan. A bad credit score, however, may mean higher interest rates and smaller loan offers. In any case, you should find out about your loan options’ interest rates before closing any deal. This way, you’ll know exactly how much goes to the interest aside from hidden fees and other charges.
Compare the loan price
When applying for a secured loan, shopping around helps if you want to find a cheap and safe deal. When comparing your options, look at the loan’s interest rate or representative APR. APR stands for annual percentage rate. It is the financial concept used by lenders to give borrowers an estimate of the loan’s overall cost. The APR basically covers your loan’s annual interest rate, admin fees and other associated charges on an annual basis.
While helpful, remember that advertised APRs are just the representatives, which means that the actual APR may be different than what was advertised. Again, the APR you’ll get will depend on a number of factors but one that has a significant effect is your credit score. A bad credit score usually means a higher actual APR.
Ask about the hidden fees
Other than the advertised representative APR, you should also make an effort to ask about your loan’s hidden fees. Most lenders, for example, have early repayment charges. If you decide to repay your loan early because you want to get rid of the debt, you might want to think twice about this financial move first. You may incur early repayment fees as a result of this decision. To know more about such fees and other related hidden charges, you can take the initiative to read the small print or even ask your lender directly.