Loans are the common medium of fulfilling the individual financial needs in time. The saddest part of the loan is the interest rate. Everything solely depends on it. A good loan is anything that is customer-friendly and less pricky. We generally select the lenders based on the interest rate and the time they follow, people generally prefer approaching the lender who offers loan at less interest.
Interest is a sum which must be additionally paid to the lender along with the actual amount taken, the amount of interest depends on the total principal loan we took and the time taken to repay it. In order to make it pretty clear to everyone, let us start with a layman example.
How Does Interest Rate Work?
Mathematically, Interest is calculated as a percentage of the total loan taken, or principal, and it’s how the lender makes a profit on the loan. For instance, if you opt for a $1,000 dollar loan with a 6% annual interest rate, you’ll have to pay $60 in interest at the end of the year.
If you take two years, then you have to pay $120 as the interest which makes it a total of $1120.
This happens in case of Simple Interest the statistics are like the example mentioned above, and in case of Compound Interest, everything changes. The total interest for the first year will be $60, but for the second year, it will be $60+$63 (here, the principal amount becomes $1060)
Logically, be it Simple or Compound, Interest is how lenders earn money.
How Does The Credit Score Matter?
Lenders have their point of view in terms of business. They know that many of the borrowers won’t make it to the right time, so they proceed with the installment procedure through which they are guaranteed of getting back little sums systematically. In this way, they end up looting the borrowers by charging heavy interest rates. Though they get a little money every month, they are sure of getting that which helps them in earning more in the long run.
Now comes the credit report. Every borrower has a credit history and depending on the conduct of the report, the lender takes a step forward to give a loan. If the score is pretty bad, they will slap the borrower with a high-interest rate, and most of the times, the borrower will agree to such norms as the rest of the lenders will do the same (charging high-interest rates).
On a common note, every lender assumes that ‘a lower credit rating’ means a borrower is less likely to pay back the sum, so they’ll only lend to that borrower if the payout is satisfyingly big enough to make up for all the other lenders that won’t pay back.
That’s their game plan which many of us are not aware of.
How Can You Deal With This Drama?
A good lender shouldn’t see their borrowers as mere sources of income, he must be willing to do his best to help the customer with the best rate, even if it means they might end up collecting less on your personal loan. A good lender also knows that a credit rating isn’t the only way to judge whether someone can pay back a loan or not. So how can you find a good lender?
Jeanne Kelly, a Nationally recognized credit expert says, “Make sure you do your research on the company and the account you are applying for.”
You must keep in mind that you should avoid those lenders who perform “hard credit checks” which can ding your credit. Go to the lender who does “soft credit checks” which won’t be appearing on your credit report.
Thanks to the Internet, now we can see the conduct of the lenders on the websites, there are a plethora of online reviews which makes our job easy on filtering the favorable lenders. Know if their customers are happy with them, and proceed thereafter.
For further awareness, you can also check the Better Business Bureau ratings. A high accreditation will obviously help in identifying legitimate businesses, while bad reviews can signal dangerous lenders. Regarding the same, manager at Trade Financial Global, James Sinclair, warns: “In relation to spotting a dangerous lender, look at the clauses they add to an agreement. Especially in relation to a missed payment- what will the effect be? What is the penalty? Understand the downside risk. It is important to understand the documents you are signing.”
Now that you are all clear about the dark sides of the loans, we can assist you in getting a candid loan in quick. All you have to do is select the required kind of loan from the products list and you will be all set to go.
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