How to Avoid a Costly Loan?

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Perform your own credit check. Your lender will pull off your credit report anyway, so why not do it beforehand? Knowing where you stand when it comes to your credit can give you the leverage that you need. Not all lenders will tell you how good your credit is and will not immediately offer the best possible deal for you, but if you know this in advance, you’ll be in a better position to negotiate.

Shop around. Just like shopping for commodities, loan rates differ from provider to provider as well. Although you may see same interest rates upfront, there are other factors you need to closely inspect and should not choose the lender based on gut feel. It pays to do an online research initially and visit the lender personally to inquire about other features of a certain loan.

Borrow only when you need it. Definitely one of the best ways to avoid spending too much on a loan is to borrow only when you need it most. It might not make sense to borrow and drag debt along just to pay for unnecessary purchases. Make sure your purpose is fruitful and worthwhile, such as buying a home or starting up a business.

Be on time with your payments. What many borrowers don’t see is how much money is wasted going to late fees. Putting off your payments does not only cost you these fees, but you will also have to make two installment payments on your next due. If you don’t meet this amount, the cycle just goes on, with your money going more to penalties and interests than the balance itself. In addition, you could lose a valuable property if your loan is secured against it and you constantly make late payments.

Consider a bigger down payment. If you’re borrowing to purchase a property, such as a car or a home, try to gather as much money as you can to put towards your down. By doing this, you might be able to negotiate to lower your interest rates. Not only that, but your monthly payments will be lower as well and you’ll be finished off with the loan repayments sooner.

Do not extend your loan duration. One of the many mistakes of borrowers is maximizing the time they are allowed to pay for the loan. While it’s nice to have low monthly payments, it could be more expensive in the long run. Besides, being tied to a loan for quite some time can be pretty stressful. Try to cut back on other expenses instead to free up more cash from your monthly budget.

Improve your credit. If having a bad credit limits your options and your ability to negotiate, consider postponing getting a loan for now. If you can wait for at least a year to significantly improve your credit by paying on time and settling other balances, you can obtain better rates in the future. The trick is to always be mindful of your credit, even if you’re not expecting a major loan anytime soon.

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