In today's economy, many households are living paycheque to paycheque and have to come to grips with the rising cost of living, whether it's the rent, food or gasoline. Oftentimes, their incomes are not enough to sustain their simple lifestyles and balance their personal finances.
This is why numerous Canadian consumers are utilizing long-term loans to ensure they can keep the lights on, keep gas in the automobile and keep a roof over their head. They are now vital tools just to maintain a certain amount of dignity, whether you're living in Ontario or PEI.
But before you move ahead with a long-term loan, there will be several factors that you need to consider as you're applying for this alternative financial product. Also, you need to conduct thorough research and due diligence by comparing loans, lenders and rates.
A long-term loan can be a multi-year commitment so you need to be prepared and ready.
Here are five things you need to know when applying for a long-term loan:
TIP 1: Do You Know What the Principal Refers to?
Many borrowers make the mistake of not understanding what the principal refers to. They often believe that this is the amount that needs to be paid back. This is an incorrect conclusion.
The principal is the amount borrowed; it doesn't include interest charges or fees. The principal balance is lowered when the borrowers makes payments on the loan.
As a recent study found, borrowers of payday loans are unsure the details of the loan itself. You need to be equipped with this knowledge beforehand, otherwise you could get ourself into pecuniary trouble.
TIP 2: Understand the Interest Rates
Let's face it: all sorts of loans are difficult to fathom because they consist of intricate language that the layman wouldn't be able to understand. And this also includes interest rates.
In summary, there are several types of interest rate terminology that you will need to comprehend:
- Interest rate: the annual cost of a loan to a borrower expressed as a percentage.
- Fixed or variable: the former is a set interest rate, while the latter can change based on government interest rates.
- Annual Percentage Rate (APR): it's an interest rate that includes the fees.
- Compound interest: this is when interest accrues on the principal sum and the present amount of interest.
These are all things you will need to consider when filling in the long-term loan application.
TIP 3: Read the Fine Print
All types of loans have their own fine print. This makes the borrowing process a bit trickier since you may come across certain terms and conditions that aren't clearly stated on the application itself. Therefore, you will need to meticulously read the fine print to ensure that you know the terms of agreement and the conditions pertaining to the borrowed sum.
TIP 4: Be Careful of Origination Fees
When you're comparing long-term loan lenders, you will notice that some businesses are offering lower interest rates than others. Sometimes, they are able to achieve this by adding an origination fee that raises your interest rates. Ultimately, you could be better off with a lender that just charges you a higher interest rate without any origination fees.
TIP 5: Never Borrow More Than You Need
Lastly, even if you are approved for additional funds, you should never, ever borrow more than you need. If you need $5,000 but have the ability to borrow $10,000 don't cave in. By sticking to the sum of funds that you need, you prevent getting involved into hard times down the line.
Long-term loans are sublime alternative financial products to households and families that need a larger amount of money for a longer period of time. A medical emergency or a much-needed home repair, long-term loans can suffice and ensure that you won't get stuck in a costly situation when it is time to start paying back the pool of money.