A personal loan is usually not a milestone one wants to reach. However, there are many financial scenarios in which you could need one. A few examples include a medical emergency, legal situation, major home repair, car damage, etc. Personal loans are also used to take care of items such as debt consolidation and can offer far better rates than a standard credit card. These types of loans come with fixed interest rates, predictable payment periods, and monthly payments that never change. Unfortunately, some lenders know their borrowers may be desperate and not in the right head space to consider they may be getting ripped off via not-so nickel and dime fees. We’ll show you how to avoid those below.
1. Fees to Apply
Many personal loan providers will not charge a fee to apply for their loans. Others do like to charge. They justify the fees by citing processing costs for the application and setting up the loan. These fees can also be non-refundable – even if you find a better rate elsewhere. You should begin by applying or researching for lenders who don’t charge a fee to apply. Some lenders can even pre-qualify you without running a credit check.
2. Prepayment Penalties
Prepayment fees are heaped on you should you dare to pay off your personal loan early. This is largely because the lender wants you to continue to pay the interest on the loan. These types of loan fees should be avoided at all costs. You should always look for a loan that won’t penalize you for paying off early, as you never know how your financial situation might change. These types of penalties are a waste of your money.
3. Late Fees
This one is a bit tricky. Almost all lenders want their money when they want it. They will charge you for missing their deadlines. This can be around $40 per each late payment or more depending on the lender. Be sure to look for a lender who offers a grace period and won’t charge you if you’re literally a day late. There are even lenders who offer forgiveness if you are only late on one payment.
Another good tip is to use lenders who have automatic payment options. This is where your payments are automatically deducted from your account. It is a good choice for those of you who tend to forget who to pay and when. There are even some lenders who offer more favorable terms and rates if you go with this option.
5. Advance Fee Loan Scams
These types of loan fees can be straight up scams. The fraud takes advantage of the most vulnerable people by promising large unsecured loans to those who have trouble going through a traditional bank. They use reputable sounding names and terms that are literally too good to be true.
Here’s how you can spot one:
- Look out for unsolicited calls, direct mails, emails, etc. Shop for your loan, not the other way around.
- Any loans that use a wiring service such as Western Union. That money could be going to or coming from anywhere in the world.
- Loan companies that use improper English. Most loan officers went to college and their speech and written communications should reflect that.
- Beware of upfront fees to cover the first month’s payment or other costs. Legitimate loans DO NOT ask for such items to be paid before the loan is issued.
- For more hints, check out this guide from the Federal Trade Commission.
More Houston Bookkeeping Tips
Protect your family in Houston from fees and scams like these and more by hiring a professional bookkeeper to watch your back.