There are times in life when you need money and there is no other way to obtain it than through an unsecured personal loan. Job loss, unexpected medical bills, or a major accident can strike even the most prepared and render you penniless. However desperate you become, it is essential to have good knowledge of your options before seeking out lenders for a personal loan. Knowing how to spot potential traps can save you lots of money and headaches before they happen.
Tips for taking out a personal loan
Tip #1: Watch out for the APR – Do not be too excited if you see a personal loan being advertised at 8% typical APR (Annual Percentage Rate) since there’s no guarantee that you would get this privileged rate. The lenders check your credit report and decide what interest rate to offer before even granting your loan request. If your credit record isn’t spotless, there’s a high likelihood the rate offered will be higher than what is actually advertised.
Tip #2: Keep your loan term short – You should make an attempt and keep the loan term as short as possible. You also should not borrow more than what you require. Once choosing the lowest term you think you can manage, you’ll pay a lesser amount of interest and therefore restrict the overall cost to a minimum level.
Tip #3: Avoid repayment holiday – A repayment holiday allows you, the borrower, to take a short break from paying off your loan. This holiday period is generally for about three months. However, a repayment holiday is a drawback since it would actually result in paying higher interest.
Tip #4: Select the loan with the lowest TAR – When you shop around for a personal loan, it’s always advisable to compare the TAR or Total Amount Repayable as this is arguably more important than the APR. With the help of TAR, you would get to know about every single penny that you are expected to repay for the loan. The loan with the lowest TAR is ultimately the one that represents the best deal.