It is always important to ask questions about the loan contract to your prospective lender before deciding whether to borrow or not. This is because not all lenders have the same terms and conditions. Some of them offer loans at exorbitant rates that can make the cost of a loan go up.
Besides, financial institutions may attract you with lower interest rates without disclosing their hidden charges. You will only come to realise the extra charges when repaying the loan. The best way to avoid such scenarios is to ask as many questions as possible during the application stage.
Here are seven questions you should ask your broker before taking a personal loan:
A reputable lender will want to ensure that you get a loan that is tailor-made to your financial needs. No doctor can recommend surgery before assessing the condition of the patient. The same thing applies to personal loans. You need to ask your lender or broker which type of loans they provide and which one is best suited for you.
Asking such questions will also give you an idea of other loan products offered by the lender. This will prevent you from choosing a loan product that’s not appropriate for you. You also get to know if the lender understands their services or not.
The annual percentage rate (APR) of a loan is normally obtained from complex calculations that include the loan’s interest rate and any other related fees divided by the terms of the loan. You should note that different brokers have different ways of computing APR.
That’s why it is important to find out from your lender how they derive their APR. This will make it easy for you to know all the factors and terms surrounding your personal loan.
This should be among the first questions you should ask your lender. You can’t source a personal loan from just any lender.
You need to work with a lender who has been in the industry long enough to understand the ins and outs of personal loans and follows responsible practices. Otherwise, you will end up in a mess that will affect your credit ratings. Ask them how long they have been operating to get an idea about their experience and make sure they have the proper financial licenses.
While your intention will not be to delay in repaying the loan, there are circumstances that may bring about delays. As a cautionary measure, it would be good to ask your lender what penalties there are in such cases and if it is possible to avoid them.
On the other hand, sometimes you may get money from somewhere and want to clear the loan earlier than agreed. You should also ask if you will be penalised for early repayment.
Interest rates do change from time to time. If you strongly believe that the interest rate for your personal loan is going to increase, then you can ask if the lender offers fixed interest rates. This will prevent you from paying extra charges in the form of increased interest rates. But you should, first of all, find out if they charge any fees for such an arrangement and how the agreement differs from a variable rate.
Reputable lenders will always ask you to provide certain documents before approving your application. This may include financial statements, a national ID card, and a credit report, among other documents. You should seek to find out what type of documents they need before issuing you a loan.
Lastly, you need to ask your broker how long they will require you to clear the loan from the date of borrowing. Is it a short-term or long-term loan? Besides, you should also determine if you can repay the loan in weekly, fortnightly or monthly installments. Most personal loan lenders allow this provision.
In general, there are many questions that you should always ask your lender before borrowing money from them. Understanding things like interest rate, how APR is derived, the experience and qualifications of the lender and reviewing contracts carefully will help you make the right financial decision.
About the Author:
Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals