More than 83 million Americans have taken out a personal loan in the last year. That means around 34 percent of the population has a personal loan they’re paying back at any one time.
Before you take on a loan, though, you should make sure you’re doing your research. Selecting the right loan and the best loan company can make it easier to pay back the loan when it comes due.
You should also be sure you take a good look at the fine print of any personal loan contract. Make sure you look for these four important elements before you sign on the dotted line.
1. Understand All Interest and Fees
When you receive a loan agreement, you’ll probably take a look at the interest rate. That figure may not account for all the fees you’ll end up paying to the lender.
Be sure you understand the difference between the interest rate and the annual percentage rate. APR includes fees such as closing costs, as well as the interest rate. If you want to know what the loan is going to cost you, APR is the more important figure.
2. Personal Loan Contract Payment Terms
Another key piece of any loan is the payment contract agreement. This will include a schedule of payments, as well as the date on which they’re due.
Most loans have monthly payments, but you can sometimes choose an accelerated schedule. Knowing the schedule will help you ensure there’s enough money in the account to cover the payment.
You’ll also want to know what the terms are for paying the loan off early. Some lenders allow you to make early payments, while others will penalize you for this. While you might be in a hurry to pay the loan off, check the fine print of your contract to make sure it makes sense.
3. Issues around Non-Payment
Any personal loan contract will have clauses outlining what happens if you default. If you stop making payments, the lender may penalize you. You may be subject to an accelerated payment schedule, or the lender may call in the loan.
These clauses will also contain information about any grace period for non-payment. A contract should also outline how you can change the agreement if you can’t make payments.
4. Collateral and Security
Unsecured personal loans won’t require you to put up collateral. They’re sometimes referred to as signature loans for this reason.
A secured personal loan does require the borrower to offer collateral. This is usually property that the lender can take if the borrower defaults on the loan.
You may need to use a savings account or a certificate of deposit. These loans allow you to borrow against the CD. The upside is they often offer lower interest rates than their unsecured counterparts.
Review Contract Terms Carefully
A contract is legal and binding, and a personal loan contract is no different. Be sure to read and review the terms so you know exactly what you’re signing up for.
Are you looking for advice on how to find the best personal loans? Check out our blog for more informative articles.