IMPORTANT THINGS TO CHECK BEFORE BORROWING

OVERVIEW

Nisha and Arvind, a young couple from Delhi, had an experience that taught them valuable lessons about borrowing money. Here’s a glimpse into their story and what they learned. Also check Singapore licensed money lender

THE STORY

Nisha bought a new fridge on a “0% interest” offer, thinking it was a good deal. But later, she wanted to pay off some instalments early using her recent bonus. Only then did she discover a 5% early repayment fee, which frustrated her.

Arvind reminded her, “It’s crucial to read the fine print. Next time, don’t get carried away by offers without understanding all the conditions.”

Later, at a gathering with Nisha’s friends, Arvind shared some key tips about borrowing money wisely. Here’s what he explained:

KEY FACTORS TO NOTICE BEFORE TAKING A LOAN

3.1 INTEREST RATE

The interest rate is the cost of borrowing from a lender. For example, a 12% interest loan may seem cheaper than a 13% loan. However, if additional fees are attached, the “lower” interest loan could ultimately cost more. Always make sure you’re considering the full picture, not just the interest rate.

3.2 LOAN TERM

The time frame for loan repayment is known as the loan term. A longer-term often means smaller monthly payments, but it also means more interest in total over time.

For instance, low EMIs can seem manageable, but they can lead to higher costs due to prolonged interest. This happens because, early in the term, most payments go toward interest rather than reducing the principal.

3.3 DOWN PAYMENT

Most lenders ask for a down payment before financing the remaining amount. The larger the down payment, the lower the loan amount and EMIs, which shortens the loan term.

One of Nisha’s friends shared her experience about buying a car. She was able to save money overall by lowering her loan term and EMI by making a greater down payment.

ADDITIONAL CHARGES TO BE AWARE OF

4.1 APPLICATION FEES

In order to complete your loan, lenders could demand a fee.

This fee is generally paid upfront and is often non-refundable, so factor it in when calculating the total loan cost.

4.2 LATE PAYMENT FEES

Missing a payment can result in extra charges, which can quickly add to the overall loan cost. Some lenders offer a grace period, but it’s always best to ensure you can afford the monthly installments before committing.

4.3 EARLY REPAYMENT FEES

You may be subject to a prepayment penalty if you attempt to pay off your loan early. Lenders may charge this to compensate for the lost interest they would have earned over the full loan term.

4.4 CANCELLATION FEES

If you change your mind after the loan is approved, some lenders may charge a cancellation fee.

4.5 INSURANCE PREMIUM

For large loans, lenders may offer loan insurance to protect against default in case of unforeseen circumstances.

CONCLUSION

It’s crucial to read every detail in a loan agreement and clarify any doubts with your lender. Even with a lower interest rate, hidden fees can make the loan costly. Don’t get swayed by appealing advertisements without checking all the costs involved.