Important Things to Remember Before Signing a Loan Agreement

The financial industry can be challenging, especially when securing a loan. Those verbal deals, for sure, are a little tricky. So, loan providers will give you a loan agreement before they can finalize the deal. A deal can only be made formally through the loan agreement document, and it ought to be legal. Both the lender and borrower are bonded together through the loan agreement and it helps to protect their interests. But, there are things to consider before you start signing the loan agreement.

An NBFC personal loan is an important financial product that can help you get the cash you desire. However, it comes with a responsibility. You must repay it when the time comes. Normally, you have to repay with interest, and sometimes, there are fees attached. In that case, it is crucial to understand what you are really getting into.

Read on to learn the most important and first thing to remember before you put that sign onto the document.

Remember to Check the Interest Rates

Interest rate is the central factor in any loan, whether unsecured loan or secured loans. However, it is easy to overlook it when in a rush to get the loan. Ensure you assess what rate the lending company offers carefully. By doing this, you will be able to know the overall cost of your loan. You can as well evaluate the repayment process and know how much you need to pay every month. A low rate is more preferred when availing the loan as it makes the loan inexpensive.

Apart from that, you must inquire about other charges like prepayment fees or late payment fees, which also add up to the loan amount. It will help if you can compare the interest rates and charges of different loan deals to find an affordable option.

Make Sure You Know the Tenure of the Loan

Never fail to check the repayment tenure of your loan before you sign that loan agreement. Understanding the tenure of your loan will help you plan and know the regular payments to make to achieve your financial freedom. Before choosing a tenure, you need to consider your potential, that is, how much you are capable of repaying every month. From there, you can now choose the tenure that suits you.

Long tenures mean you will have smaller monthly payments, while short tenures equate to large monthly payments. A shorter tenure can save you on interest since the EMIs will be huge. In fact, you will finish paying the loan earlier. When you consider the repayment tenure, you can easily manage your loan payments without any hassle or having any financial challenges. Remember, the loan tenure varies between lenders; some can agree to a tenure that ranges from 1 year to 5 years. If you consider a short term loan, you will have a short tenure that does not go beyond 2 years.

Understand the Fees and Charges Included

Most people will only check the interest rates and go ahead to sign the loan agreement. But that shouldn’t be the case. Obviously, there are other fees and charges that affect the total cost of the loan. For instance, some lenders charge borrowers penalties when they repay late or very early for loan closure.

There could also be processing fees that vary among lenders, but most of the time, you may find this fee stated at 2% of the total loan amount. Normally, this fee is used to cater for the administrative costs which are incurred by lenders. There may also be verification charges which cater to the background checks done by the lending firms to gauge the credentials and the repayment capacity of the borrower.

Know the Type of Loan

This is also an important aspect to never miss out on. Fixed rate loans have to pay the same interest throughout the loan life. With such loans, you will have an easier time budgeting your finances. But, variable rate loans have a fluctuating interest rate that changes depending on the market conditions. The monthly payments will also not be the same, and they will keep on changing. Therefore, be sure to understand the kind of loan you have and plan your payments accordingly.

Think about how to lower the rate

If you can afford to put down more money in advance, the loan will not be riskier, and the rate will be lower. In the case of mortgages, you might use the points to lower your rate. Every point normally costs at least 1% of the loan amount, and this point will greatly lower the rate by approximately a quarter percent.

But, this will make sense if the home you want to buy is a long-term investment and you plan to stay there for a long time until the savings reach the investment.

Review the fine print

No matter how tempting it might be, do not skim through the loan agreement just to acquire your funds. It is very essential to check through the contract and ensure you understand the nooks and crannies of it.

Check the fine print to note anything that looks incorrect and unclear. The responses you get from your lender will help you know if you can go ahead to apply for the loan from the same lender.

Keep an eye on the red flags

It is also important to check for red flags. They will show if the lender is untrustworthy. If you are asked for upfront money, just know right away that the lender isn’t to be trusted. Some may rush you to apply for the loan, they pressure you to sign the loan or provide some terms that are too good.

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