It is no surprise that most people adopt a sceptical attitude when applying for an instant loan online. Unscrupulous companies often carry out deceptive practices to make quick money off unsuspecting borrowers. This has not only tainted the industry but also demonised legitimate and responsible online lenders. While it might be difficult to tell apart genuine lenders from predatory ones, it is crucial to create awareness regarding a mandatory checklist while applying for an online short term personal loan. Here is a list of things you should exclusively pay attention to and be aware of.
1. Know The Difference Between Interest Rates & APR
The basic premise is simple – the lower the interest rate, the more viable it is for you. However, many lenders are deceptively present interest rates in relation to APR (Annual Percentage Rate). Dubious lenders can hike APR exorbitantly by charging fees upfront. For instance, a 1-year loan with a 10% interest rate and a 5% origination fee might have an APR of 19.8%. This is because such lenders provide you with 95% of the requested amount, yet levy interest and repayment rates that go up to 100%.
2. Be Wary Of Hidden Fees
Fraudulent lenders often employ this trick to earn quick cash – a certain rate is agreed upon, and then, suddenly, you are hit with hidden fees and additional charges. While some fees is standard, these lenders charge additional amounts that include origination fees greater than 10%, loan payment process fees, and payment by cheque fees. Ideally, origination fees should be zero, though low single-digit rates is acceptable. Before you agree to the terms of a loan, make sure that you understand all the costs and fees associated with the offer. It is usually a red flag if the full list of fees and penalties is not outlined on the lender website.
3. Avoid Prepayment Penalties
Prepayment penalties are ridiculous and make absolutely no sense – why should lenders penalise someone for being a responsible borrower? It should be considered a virtue to be able to pay back loans in time. An individual’s financial situation can be extremely volatile and dynamic, and delinquency in loan repayment can occur to the most punctual borrowers. Instead of rewarding repayment, some lenders lock a certain amount of profit for each loan. You should avoid lenders that charge high prepayment penalties. After all, there is no dearth of quality lenders who are flexible and reward creditworthiness instead.
4. Choose A Plan That Suits You The Best
Not every borrower can benefit from a standard loan plan. Lenders should be able to gauge the financial landscape of individual borrowers and provide a customised solution catering to their needs. A lender should offer myriad services to people with varying credit backgrounds, as a one-size-fits-all scenario is not viable in the long run. There must be a certain level of flexibility in terms of loan duration, interest rates, payment methods, etc. For instance, if your primary goal is to have a low monthly payment, some lenders might be willing to extend the loan term from 3 to 5 years, in exchange for a slightly higher interest rate.
5. Get Rewarded For Timely Payment
If you are new to cash loans online or are looking for an improvement in your credit score, it is important that the lender reports the same to major credit bureaus. You should be rewarded for paying your outstanding amounts on time so that you can build your credit history. Opt for small business or personal loans and work towards building your credit score – this will grant you immense financial security in the long run.
Hence, beware of companies that harbour questionable intentions and try to take all factors into consideration before taking a financial decision.