When it comes to getting personal loans, a lot of us make the mistake of signing with the first lender who offers us the loan. We are so interested in getting the loan that we neglect the credibility of the lender, the terms they are offering, and so on.
Leading financial experts recommend that the company or business you are getting the loan from needs to dictate your decision in a major way. With the right lender, your journey of getting a personal loan will be a simple, easy, and hassle-free affair.
With the wrong lender, you would be looking at incredible periods of hardships, miscommunications, and exploitations. This is why you must do thorough research when selecting the right lender.
In this article, we are going to look at five important factors you need to consider while choosing a lender for a personal loan. Before we get to the list, let us first look at the different types of personal loan lenders in the market.
Financial Lenders: Meaning and Types
A Financial Lender is a body of persons, institution, or established company that offers financial credit facilities to individuals or companies. This extension of credit (in the form of money) is done with the belief that the borrower will be able to repay the entire sum of money plus the interest that is applied on the same. A term period is decided and the paperwork is done.
According to leading financial lending institutions like ukcredit.sg, there are two major types of financial lenders in the market-
Traditional Lenders: These are your banks, credit unions, and other institutions that follow regulations and are part of the formal financial sphere. They offer industry benchmark rates, term periods and have a proper documentation process. The requirements for getting a loan are quite stringent.
Alternate Lenders: In the past couple of decades, alternate lenders have come up to help individuals and businesses that do not have proper documentation or cannot offer collateral. These lenders extend credit by taking a lot of risks. They charge higher rates of interest from their loan applicants.
List of 5 Things to Consider while Choosing a Lender
Make a Comparative Assessment of Interest rates-
The first thing you should be doing is comparing the interest rates between lenders. It is better that you go for lenders that charge a lower rate of interest. This will make your loan repayment process easier and allow you to return an amount that will not hurt you financially. While lower rates of interest should be considered, they should not be the only deciding factor.
Understand the Fine Print of the Agreement-
Smart, smiling banking executives look like they will do anything to genuinely help you. However, they are businessmen who want to ensure that the bank has the best conditions. This is why customers need to go through the fine print and understand the terms and conditions that are mentioned. You need to ensure you are not getting exploited by the lender at any time.
Take the Processing Charges into Consideration-
As soon as the bank signs off on the personal loan, they need to ensure they have made a profit. They do this by charging processing fees, administrative charges, handling commissions, and so on. This ranges from 1% to 5% of the total loan amount. If your loan processing fee is more than 1% you need to move to a different lender. This is a wrong strategy that they adopt.
Focus on Penalties and Foreclosure Charges-
Lenders want to have the cake and eat it too. If you fail to make an EMI payment on time, lenders are notoriously famous for penalties and fines. They take into consideration the interest of the interest rate and then charge you. On the other hand, if you want to repay the entire loan before the period ends, they are not happy. They charge you exorbitant foreclosure charges.
Look for Offers, Discounts, and Plans-
Every lender will try to use bait to attract you into getting the loan from them. Customers need to be wary of falling for such tricks. No matter what kind of an offer the bank is putting out, always remember that there is a catch to it. This is why you need to stick to the above four factors when you are making a selection of the different lenders.
The Bottom Line
By taking into consideration all the above factors, you will be in a much better position to select the right lender for your personal loan. If you have any other questions that you would like us to address, drop them in the comments section below. We will be more than happy to address as many of them as possible.