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How to Choose a Responsible Lender

By Enero Febrero

You’ve decided to take the plunge and get a personal loan. It all sounds so simple — but the sheer volume of personal loan options and lenders to choose from can be overwhelming. With that in mind, here is a handy guide of five simple tips designed to help you choose a responsible lender:

Take Your Time

You shouldn’t rush into getting a personal loan. Take the time to work out all the details, know exactly which kind of loan would suit your situation, and calculate the amount you will have to repay each month. In fact, you should check out a lender’s acceptance criteria before applying for a loan with them. If you apply and get rejected, this could have a negative effect on your credit score.

Unsecured vs. Secured Personal Loans

You will generally have to choose between a secured personal loan, where you will put up an asset as security against your loan, and an unsecured loan. Unsecured loans with no assets are considered to be more risky ventures for lenders, so the interest rates charged are generally much higher. Your decision will mainly be driven by your financial situation at the time, but just know that if you opt for an unsecured loan you will likely end up paying more in the long run due to the higher interest rates.

Be wary of high APR rates

APR refers to the Annual Percentage Rate; that is, how much your loan will cost you over a year, including the interest rates and fees charged. Stay away from loans with massive APR; you’ll pay much more interest over the course of the loan. Some payday loans can have rates as high as 400% APR!

Steer clear of 100% guarantees

These are the loans you see that claim that no one is refused, no matter what their circumstances are or how low their credit score is. Take this as a warning sign. These lenders often charge exorbitant interest rates and high fees. You’re more likely to fall into a debt cycle, where you accumulate more debt trying to pay off the loans you already have.

Take care with variable interest rates

Both variable interest rate loans and fixed rate loans are available. With a variable interest rate, the amount of interest you pay from month to month will fluctuate according to the market interest changes. If the interest rate suddenly increases, you may find your payments go up significantly. For those on tight budgets, this could make meeting your repayments difficult. On the other hand, it’s been shown that you often pay less interest in total with a variable rate loan. If your budget can handle it, you shouldn’t ignore this category completely.

So there you have it — a quick, easy guide for choosing a responsible provider of online personal loans. Just be sure watch out for any hidden traps and make sure you’ve read all the small print before signing on the dotted line.

Photo Credit: stock photo

January 22, 2019

Comments

  1. 1

    RD Blakeslee says

    Also important, I think: What is the motivation of the lending institution? I have found that credit unions are more attuned to the interests of their member customers than are commercial banks, which are primarily interested in their investor shareholders.

    Also, credit unions enjoy certain tax advantages (which infuriate banks). That gives them a cost advantage so they can offer lower-priced loans to their shareholders.

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