We all get to a point in our lives where the only option we have to get extra money for a personal project is by taking out a personal loan. However, banks can be very tricky when it comes to loans and taking a new loan can be such a dangerous especially if you decide on it blindly.
You may be going through Toronto RMT, and you happen to come about an interest loan offer segment. Unsecured loans can be the simplest products there is, but you need to be careful because the banks still manage to get extra money from you in some additional ways. Here are some of the traps you need to watch out for before taking out a loan:
- Small and Fleeting
If loans are actively sold to you, one of the temptation is to go for a more significant sum that you intend to take. Another temptation is the bank or lenders tend to convince you that if you want to reduce monthly repayments, it’s better to drag out the loan longer.
The thing is that advice they give you is not them trying to be useful most of the time, but they’re trying to earn more money from your loan over a longer time frame. It is wiser if you make the loan as small and short as possible if you want to keep the costs down. When you take a long one, you’ll never get back your debt interest even when you pay.
- Compare the TAR and not the APR
The APR or annual percentage rate is supposed to be a standard way of comparing the loan cost annually. However, banks tend to manipulate the APR, so to be on the safer side, look at the TAR or total amount repayable to compare the cost of your loan.
The TAR gives you the total cost including the charges and interest you will pay from the first payment you make to the last. You need to make sure that you can afford the monthly fee.
- Origination Fees
The TAR is the most important figure. However, make sure you know if the costs include other charges other than interest, for example, an origination fee. Make sure you always include the origination fees charged when comparing banks, by all options you are considering.
- It’s Not All About Cost
Personal loans mean that you are not charged if you want to pay off your loan early or you are not allowed to make overpayments. Find better T&Cs because these generous terms exist, even though they are rare. Keep an eye out for them and understand any fine print before deciding to take a loan.
- Consider Alternatives
It’s always better to compare an unsecured loan with other likely alternatives you might have. The best option is saving up to buy later. However, if that is not an option for you, you can use your credit cards to get low-interest rate short-term loans.
Another alternative is ensuring that you close your accounts and cut up any existing credit cards if you use the personal loan you take out, to pay off other debts. If you use your debt-free credit card, you will be racking up more debts on them, and that should not be an option.