
15 Nov Avoid Loan Regret: Key Considerations
Loan regret can cause feelings of distress, unnecessary worry, or emburdenment. Many people have described feeling like they would gladly give back what they used their personal loans on to wipe off their debt.
One borrower said, “I would gladly give back my diploma right now to erase my loans. I would lose my job but I don’t even care. I could take a job paying half of my current salary and still come out ahead if you add in the years of my life I’m losing from the stress of these payments.”
How can we avoid feeling like the consequences of personal loans are inescapable? In this post, Loan Wave discusses measures you should take before signing loan documents: key considerations and what to avoid.
How to Mitigate Loan Regret
Let’s outline the steps you should take before making a loan agreement: research, assess affordability, understand terms and conditions, and have a backup plan.
Research Different Loan Companies and Options
Before you settle on a personal loan, be sure you’ve researched all your options carefully and understand the terms you should get vs. the terms you might be offered.
Your credit score and report usually dictate your loan terms. A higher credit score with a positive repayment history means you’ll likely be offered low interest rates, flexible repayments, or even reduced fees. Conversely, a low credit score means that your loans could come with exorbitant interest attached, a shorter repayment period, and possibly, higher fees.
If a loan company offers you high interest rates and short repayment periods despite a good credit score (650 or higher), they’re likely trying to rip you off. Opt for a loan company that offers reasonable terms.
Assess Affordability
Under the National Credit Act, all lenders must assess affordability before granting you credit access. Before applying for a loan, do an affordability assessment for yourself–no one knows the variables in your personal and work life that could cause how much money you have available to fluctuate as you do. Be sure that you have enough breathing room to afford unexpected expenses with loan repayments.
Make sure you have a plan for the worst-case scenario, too. Take out loan insurance against job loss and sudden illness or disability when you choose the right loan.
Understand the Terms and Conditions
Before you sign anything, be sure you’re 100% certain of your loan’s terms and conditions. Be sure you understand:
Whether Your Interest Rate Is Fixed or Variable
Fixed interest rates stay the same throughout the entirety of your loan repayment period. This means you’re protected against interest rate rises, but you won’t benefit if interest rates drop significantly. Variable interest rates are market-dependant. When the prime interest rate drops or rises, so will your loan’s interest rate. This means you’ll have to monitor interest rate trends, like repo rate fluctuations.
Fees
Some institutions mandate that borrowers pay initiation fees (money to get the loan) and service fees (fees to provide you with the loan) on top of interest. Ensure you understand all possible fees to avoid any nasty surprises.
Prepayment Penalties
Prepayment penalties are fees a lending institution might make you pay for paying up early. This is because they’ll lose out on the profit they would have made from your interest.
Choose a Reputable Lending Company
Lastly, make sure you choose a lending company you can trust. They should have excellent customer service, make sure you fully understand your loan agreement, not have fees hidden in their fine print, and assemble interest rates and repayment periods fairly.
If you would like a personal loan from a lender you can trust, apply with Loan Wave. We’re passionate about helping people finance their dreams safely, fairly, and affordably.