If you have taken a loan before, read it anyway and share what tips you have. I'll add it so everyone can benefit.
First of all don't take out a loan you can't pay or can barely pay. If you do, the leverage is entirely with the bank.
Second, don't ever go the 5-6 route if you can't get it from a bank. Don't go to a pawnshop either unless you have no plans to redeem the item - the rates are not worth it.
If your problem is not the payment but the tedious documentation (or your lack of it, maybe), then get a legitimate micro loan lender. The rates are actually higher than banks, but a legitimate one will be interested in helping people, not repossessing their assets.
Once you're ready to take out a loan, don't forget one thing: You basically become a paying customer.
By getting a loan, the lender is making money off you. They have an incentive to get your business. Don't patronize lenders that don't understand that.
Ask around and search the internet to find out which banks or micro-finance lenders are available to you. Just like if you were shopping, make a list and canvas until you get the best offer.
To know which is giving you the best offer, ask these questions and compare their answers:
How much is the interest rate I will have to pay? Obviously, the lower the better. Make no mistake, even a 0.5% difference can be huge. Heck, even a 0.1% difference over a few years can mean big money.
Is it fixed or variable? Always get a fixed interest rate, unless you've got inside information that it's 100% guaranteed without a shadow of a doubt that it will absolutely keep going down in the life span of the loan. There is no such guarantee.
Even if the economy is going well, the bank can decide to raise the interest rate on your loan. After all, there is nothing on the contract to prevent them from doing so. They merely have to state (without much transparency why) that the new, higher rate is their prevailing rate.
Is it paid one month in advance or in arrears?
Although you'll pay more upfront with a one-month-advance scheme, in the long run it will cost you less on the total amount you'll have to pay.
Even if you've decided which one fits your finances, ask this still because the lender may be quoting the lower interest rate, when in fact you're interested in comparing loan terms in arrears.
Can I pay more than the monthly payment and have it counted against the principal?
Some banks allow it, some banks don't. It's much better for you if the bank allows it as you will be able to close the loan sooner, and probably save on the total cash spent to do so.
Be sure to consider this when computing and comparing loan terms.
What are the other fees I have to pay - and how much are they?
If you don't meet the necessary downpayment for the asset you're buying (like real-estate), the bank can still approve your loan, but may charge an additional monthly fee (sometimes called a mortgage rate insurance).
Even if you do, there may be additional charges like chattel mortgage (for vehicles).
And even after paying all those upfront fees, they can charge an annual fee (like a loan renewal fee).
What is the step by step process for availing of the loan?
It might be obvious or the same for all lenders. But the important part is the step-by-step procedure. If something goes wrong that causes a delay, you can get slapped with a penalty.
Example: You paid the upfront fees, you opened an auto-debit account from which the bank can get your payment. But the bank rep forgot to make you sign the authority to deduct - so the bank (through their own fault) was not able to collect your money on time. Even if it was just sitting there in your account - waiting for them.
Result? You pay them money because they made a mistake. Ouch.
(A nice and very detailed example, almost as if it actually happened...)
- A lot of banks quote their rates online. Try visiting their sites.
- You can also try imoney.ph, which compares a lot of banks
- Go to the bank and verify the info yourself, their rates can change but their site may not have been updated.
- For micro-finance, you can also try lenddo.com
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photo credit: paloetic via photopin cc