What to Look Out for When Taking out a Personal Loan

A credit card shouldn’t be a default when you are looking to borrow some money, a personal loan isn’t only a simpler way to borrow money, but they also offer better rates. Even better, you can also shop for the best personal loan available to you without hurting your credit score. When you are approved for a personal loan and then accept the terms, the money can be sent directly to your bank, or you can get a cheque.

Insurance Sold With a Personal Loan

However, while personal loans sound great right now, they aren’t without there faults. You will need to watch out for a few traps that you can fall into. And we will start off with insurance being sold with your loan.  We will all want to protect our families from the unexpected and insurance can be a great way to do just that.

Similar to how we recommend planning in advance for your debt, you should do the same with insurance. However, many personal loan providers will try to add an insurance sales pitch at the end of a loan closing. The two most typical types of insurance are life insurance and unemployment insurance.

Just make sure that you are asking these three questions before you decide on which option is best. “How much does this cost a month?”, “What are the requirements for me to be able to claim?” And “How much would it pay and for how long?” and you will likely see the policy being offered is poor value.

Pre-Computed Interest

Now, we are going to move on to the fact that there could already be pre-computed interest. This one, in comparison to the others, is a bit confusing. So, we will make it simple. Pre-compute interest is a bad deal.

Avoid it, and don’t be afraid to ask if it is being done to you. It is a complex way of calculating interest – and the entire reason it exists is to make sure that you have to pay a huge amount of interest in the early part of your loan.

So, if you pay off your loan early, then you will end up paying a higher interest rate than the rate that has been quoted. The bottom line is you shouldn’t be afraid to ask if they calculate interest using the “pre-compute” method. If they do – don’t be afraid to walk away. Especially if you think you are going to pay off the loan early.