It is common to struggle when you are thinking of asking for a loan and you do not know where
to start. Most of us struggle with the terms and conditions offered, and it seems like it would take
an eternity before we finally start understanding what each term actually means. Thankfully, we
are here to help you, and give you some of the best tips you should use when asking for a loan.
Here are our best loan tips, so you can chose the best loan for you:
1. Choosing the lowest interest rate is not always the best
While some people may think that choosing the lowest interest rate is always the cheapest
option, that is only true in the short term. What happens is that the cheapest rate is always the
variable rate, however, variable rates are subject to change in the short, medium, and long term.
This means that choosing a variable rate can sometimes backfire, as rates may increase and so
your monthly payment as well as the interest you are paying on loan also increases.
This is why it is so important to understand the difference between fixed and variable interest
rates, and how they can impact the amount of interest you pay on your loan.
2. Understand fixed vs variable rates
Variable rates are always the cheapest option, and this is why so many people usually choose
them when they ask for a loan. However, it is important to understand that with a fixed rate you
are paying a higher price to keep your monthly payments the same until you pay back the loan.
While fixed rates may be a little more expensive, it prevents the loan payment from increasing in
the future, and they are by far the safest option. Variable rates can also be used, but they are
better suited for individuals who plan on paying back the loan in a very short time.
3. What percentage of your salary is the monthly payment?
Calculating the percentage of your payment relative to your salary will also help you determine if
a loan is right for you. You want to avoid paying a very high percentage of your salary every
month as a loan. Typically, anything above 20% is a very high percentage and for that reason, it
is always wiser to borrow a lower amount or to extend the period of your loan.
4. How long do you have to repay the loan?
The maturity of a loan is also something that should be considered. While a long loan maturity
allows you to dilute the payment, making it smaller, you will end up paying more in interest
because it is charged yearly.
To choose the right maturity for your loan, you need to consider how you will use the money as
well as if you will get any money in the meantime. For example, if you are waiting to sell your
house, and you need some money, you can ask a shorter-term loan, which will help you until
you finally sell your property. This is why you need to consider your personal situation and see
what really works for you.
5. Do you have any more loans?
If you have any more loans, it might be a good idea to consider borrowing a higher amount and
paying one of the loans. This allows you to lower your monthly loan payment in a way that is
flexible for you. Carrying several loans is hardly ever a good idea, and it can increase your
payment due to the fees and commissions charged. Another option is to consolidate your loans,
into a single loan if you have more than one loan.
6. Avoid credit cards
If you really need to borrow money, it is always a wise option to avoid credit cards. The reason
is that credit cards have much higher interest on the money, you use so you end up paying more
in the end. For that reason, if you need to borrow money, it is always better to consult with a
bank or loan provider and ask for a quote on what they can offer.
7. Apply to multiple loan providers
One of the most common mistakes people make when applying for a loan is that they take the
first loan they are offered. This is always the worst approach because you may be missing out
on better terms and lower payments.
For this reason, evaluating different loans, and loan providers are always the wisest option. This
lets you compare the different interest rates, payments, and duration of the loan.
8. Loan consolidation
Loan consolidation is a great way to generate some savings and reduce your monthly loan
payments. If you have more than one loan, loan consolidation is one of the best options you
should consider. It allows you to have just one loan instead of multiple ones. This saves you
money on the commissions and fees charged, and you can also renegotiate the amount you
have to pay monthly.