Aug 27, 2021 ●10 min read
4 Mistakes to Avoid While Choosing a Lender
As a new borrower, when you are reviewing personal loan offers from various lenders, the process might be intimidating at first glance, especially considering the fact that most lenders have a love for financial jargon in their loan documents. However, if you are flared by these, you are putting yourself at risk of choosing a lender without considering some important parameters, and in today's article, we will talk about exactly those.
On the surface, all lenders appear to have the same operating procedure, with the only noticeable difference in the interest rates they charge and the tenure they extend. However, in actuality, this is not the case.
Keeping this in mind, as a borrower, you need to make sure that you cross-check a number of parameters before you agree to a loan offer from a lender, and some of the most significant of them are as shared below.
1. Not Conducting Your Research
When we are in a financial strain and are in desperate need of funds, a common urge we succumb to, is onboarding ourselves with the first lender we come across. Although this step might appear harmless at first glance, the reality could not be further from the truth.
The reason behind this is simple; without proper research and a lack of knowledge on the various loan products available in the market, you are putting yourself at the risk of choosing a lender who may not be the best in the industry.
Through your research, not only will you be able to identify the defects present in the various lenders you come across, but the process will also expand your knowledge on the best interest rate you can negotiate and a tenure that works for you. Along with this, a lack of research might sway your decision as you are not informed on the matter, thus equipping the lender with the upper hand in the negotiation process.
Thus, ensure that you always do your research and not jump ship with the first lender you come across.
2. Not Asking Around
The second mistake you need to avoid is not asking an experienced borrower before you submit your loan request. The reason behind this is simple; although all the loan documentation and supporting documents are available for your review for free on the internet, the experience of a seasoned borrower cannot be seconded. Let us shine some more light on this matter.
There have been instances in the past where lenders have used the fine print on lending documents to overrule a borrower's opinion; however, you will never come to know about this without asking an experienced borrower, as every lender operating in the market always aims at keeping their reputation clean.
Along with this, by asking around and conversing with an experienced borrower, you can gather a learned experience of what to do and not do when you are availing the features of an instant personal loan. Although this material is available online for you to read, the fact remains that the gravity of the matter can be better understood when you are speaking with an individual rather than a blog post.
3. Only Comparing Advertised Rates
The third mistake, which we have often identified new borrowers commit, is constantly comparing the advertised interest rates of lenders. While on the surface, it might appear that the wordings on the marketing material is true to their purpose, however, in reality, there is a lot more to interest rates in quick personal loans than meets the eye.
To understand this better, let us take the help of an example.
Let's assume that you come across a personal loan advertisement, which displays an interest rate of 5%. Now you assume that the interest rate will be charged per annum; however, that might not be the case. Thus, upon meeting the lender, you should ask the lender the following questions:
a. What is the calculating frequency of the interest rate? Is it yearly, monthly, daily etc. knowing this information will help you calculate your interest payment in advance.
b. What type of interest are you charging on loan? Is it a fixed rate of interest, a revolving rate of interest or a reducing balance interest rate? As you might have already guessed, each of these interest rate types have a different calculation; for instance, in a fixed interest type, the interest amount remains the same throughout the tenure of the loan, while in a reducing balance interest rate, the interest amount keeps decreasing as you pay back the principal amount. Lastly, in a revolving interest rate, the interest rate charged on the loan might vary with changing market conditions.
In some cases, although the interest rate might appear manageable, the lender might charge you additional amounts in the form of hidden charges, which increases your overall debt, and thus you should enquire about this beforehand.
4. Not Checking Online Reviews Last but not least, a common mistake borrower often commit is not checking the online reviews of a lender before signing with them. These days, there are reviews available online for all product imaginable and financial lending instruments are no different. All you need to do is go on to your favorite search engine and type in your lender name, followed by the key phrase “online review”.
Reading through online reviews submitted by previous borrowers will not only give you a better idea of the whole picture but also help you put in perspective if this is the right lender for your needs.
As a new borrower, the world of instant personal loans and especially choosing a lender might appear to be supremely intimidating at first glance; however, with a little patience and dedication, you too can navigate your way through this. Just believe in your decisions and don't commit the mistakes outlined above.
All the best.