Common Traps to Avoid when getting a Personal Loan

There are some common traps that you will want to avoid when going about getting a personal loan. Some of these traps can be quite troublesome for those who are looking to borrow money for something. The more you know about these traps, the better off you will be. Sometimes personal loan traps aren’t always obvious, which is why you need this article to help you out as much as possible. A surprising number of people do not know about these tricks.

Insurance Tricks

It is completely normal for you to want to protect your family from the unexpected, which is precisely what insurance is for. A lot of personal loan providers include an insurance sales pitch at the end of a loan closing. There are two main types of insurance are life insurance and unemployment insurance. You should definitely be aware of high-pressure sales tactics when getting a home loan. Usually these insurance plans are very poor and not comprehensive at all, which is where the “trap” part comes in.

Pre-Compute Interest

Pre-compute interest is a horrible deal and it is to be avoided altogether. It is essentially just an overly complicated way of calculating interest. The entire reason it exists is to ensure that you pay more interest on your loan early on. If you pay off your loan early, you will end up with a higher interest rate than what you were initially quoted. If you take out a loan with a three year term and you take full three years to pay it off, there is no difference between a normal loan and pre-compute one. If you pay the loan off early though, you will end up paying more interest. This has become somewhat of a common loan trap that you do not want to fall into.
Origination Fee

Origination fees have become fairly common with personal loans, so you really cannot avoid it. If you want to see whether or not you are really getting a good deal, it is important to compare the APR of the loan as opposed to just the interest rate. An APR will include the origination fee, and it assumes that you aren’t going to pay it off early. Some people get stuck with this fee when they don’t realize it is deducted from the loan amount. It is incredibly important that you make sure you are borrowing the right amount. You do not get a refund if you pre-pay. Even if you pay off your loan one day later, you are not going to get the fee refunded at all.

Prepayment Penalties

You can have a fixed interest rate, fixed payment and fixed term with a personal loan. If you take the time to compare APRs, you should be able to make the right decision. Just make sure that you do not simply jump into picking a personal loan and end up taking out a pre-compute loan. The last thing you want is to have three add-on insurance policies as well as a big origination fee, only to refinance the loan three months later.

Conclusion

The fact is that personal loans can be of great help, but you will need to make sure that you don’t fall for some of the more common traps and tricks that exist. Each year millions of people get personal loans, but not enough of them are aware of these traps. The more time you take to learn about these traps, the better off you are going to be overall. If you want to get the money you need without falling victim to a trap, this article’s information will certainly be of great help to you.

Unfortunately, many people who get a personal loan end up spending more than they needed to because of a clever trick or trap of some kind. There are numerous unscrupulous lenders out there, and you certainly don’t want to get taken advantage of by one of them. The more time you take to research these traps the better, because you simply cannot have enough information on your side. Those who get this information will be protected from serious consequences later on.