Taking out loans is an all too familiar part of life for the American consumer. It can be a pretty scary experience if you aren’t sure of all the rules and regulations associated with it. You can familiarize yourself with this by reading through the fine print, as always. Because the fine print is always tiny, here are some questions you can ask your lender in size 12 font.
- Can I pay my loan early?
Know the ins and outs of your repayment plan. Know how long you have to repay the money and how much interest you will be charged. A creditor might advise that you pay on a 12 month payment plan. When signing up for these plans watch out the APR and monthly rates. Some plans may offer 0 to 5% APR with higher monthly payments or a 60 month payment plan with an APR of 14%. First determine your payment personality to see which of these options a better fit is for you.
The lower interest rates on the shorter term can be enticing, but if you’re a traditional borrower the longer payment plan might suit you because of its lower monthly payments. Either way, make sure that you will not be charged a penalty fee if you choose to pay the loan off ahead of schedule.
- How will they calculate interest?
Calculating interest can get kind of tricky. So make sure that if you don’t understand the interest guidelines laid out in front of you, consult your advisor. Lenders sometimes show interest rates as APR rates. So if your interest rate is 12% APR, 1% of your balance would be added to your bill every month. It’s important to discuss the calculation with your lender, because each one does it differently.
One lender might add the interest monthly; some might add the interest daily. If you get a loan that adds interest daily, it can lead you to having a higher principal balance and causing you to pay more money over time. Also, you should know if your loan is an adjustable rate or fixed rate loan. This will determine the limit you are allowed to be charged over time.
- Do they report my payments?
If you are looking to rebuild your credit or raise your credit score, this is a very important question to ask. Loans usually don’t have an effect on your credit score unless the three major credit reporting agencies know about it. Talk to your lender to see if they will report your payments to Equifax, TransUnion and Experian so that your credit score can be affected. Most lenders will report the information to the credit reporting bureaus, but they are not required to do so.