Top 4 Traps in Personal Loan Application

Different kinds of loans are made available in today’s time but most people prefer personal loans as they are not only simpler but also offers better rates and conditional agreements. However, personal loans are not without their faults as well. Here are Top 4 traps that you need to watch out for prior to applying for personal loan.

 

Insurance

Insurance, more often than not, sounds good as this is primarily used to hedge against the risk of contingency. But some personal loans that offer insurance may lead to danger rather than what was expected. You may not be able to detect the risks of adding this to your initial loan as many lenders or providers pitch a sale at the end of a loan closing.

Life insurance and unemployment insurance are two of the most typical types of insurance you might encounter. Unlike personal loans, these require in-depth review as some policy being offered is poor value and saving the money yourself might be a better option.

Pre-compute interest

 

All deals pertaining to your personal loan should be in a black and white transaction. That is your right! Thus, if there exists a pre-compute interest without your knowledge do not be afraid to do something about it. Pre-compute interest is a complex way of calculating interest in a personal loan and the entire reason it exists is to make sure that you pay more interest in the early months or years of your loan.

Origination Fee

This is a fixed charge for most personal loans. Since this is an unavoidable fee, the best thing you can do is make sure you are getting a good deal. How to do this? Compare the APR or the Annual Percentage Rate of the loan and not the interest rate. An APR includes the origination fee, and it assumes that you do not pay off the loan early.

Prepayment Penalties

 

Though it is good that you want to pay your debt early on there are still repercussions to consider. That is why you should ask if your personal loan terms have a prepayment penalty. In this way, you can be able to avoid it completely.

Personal loans may be easy and simple but you should be aware of traps. Take heed!