The credit market is competitive, with banks and smaller fast money lenders offering various loan products. Each kind of loan serves a different purpose and comes with different terms.
These terms can either make or break your budget, so it’s best to study them first. In particular, take a look at these four loan terms that can affect your monthly budget in unseen ways.
Loan tenure
Longer loan tenures often are lighter on your budget. They have lower monthly repayments than loans with shorter tenures. But there’s a catch.
What you don’t see is the higher amount of interest you pay in the long run. This is usually the case with longer term loans. While the repayments are easier on your monthly budget, the loan will end up costing more because of higher interest.
With these factors in mind, choose a loan with a reasonable tenure. The one with the longest tenure is not always the best, especially if it will cost you significantly more in interest payments. If your budget allows it, go for loans with shorter tenures and lower interest.
Prepayment penalties
Ideally, you want to pay off your loans as quickly as your budget will allow. The faster you pay back the full amount you borrowed, the better it will be for your financial health. Except that some loan providers don’t want you to do this.
Some loan products have what are known as prepayment penalties. In other words, the lender will charge you extra if ever you decide to pay off your loan before a set date. This is a way for lenders to earn more out of interest payments. The longer time it takes to settle your principal amount, the more interest lenders can get out of you.
Prepayment penalties may sound treacherous, but they are legal. Many banks and lending institutions have lock-in periods for certain loans, which is a minimum number of months or years that you have to repay the loan. Paying it off in full before the lock-in period ends incurs a prepayment penalty.
Late payment charges
If paying early can incur charges, paying late does too. Many loan products slap you with late payment fees should you miss the monthly repayment deadlines. This can easily eat away at your budget if you’re not careful.
To avoid this, always pay your monthly dues on time. Better yet, pay for them well before the deadline each month.
Front-loaded interest
Some loans force you to pay interest only in the first few months of repayment. This way, lenders are forcing you to take longer to repay the principal amount. In turn, the loan will cost you more over its tenure.
If you can, avoid loan products with front-loaded interest payments. Only take on these kinds of loans if you really need to, or if you have no other choice.
Conclusion
Loan terms are of the utmost importance when choosing the best loan to take out. Always read your loan contracts, study the terms carefully, and find out if they’re a good fit for your financial situation. When in doubt, walk away and find a better money lender in Hougang.
