At some point in your life, you will need to borrow money. You may do this with a credit card, personal loan or even a mortgage. Unfortunately, borrowing money has a relatively high cost. You need to understand and compare these costs before borrowing money.
You Repay More Than You Borrow
Almost every type of loan has a cost associated with it. You can pay this cost upfront, during the term of the loan or monthly. In most cases, you pay the fees associated with the loan before you start paying what you owe. In the case of credit cards, you pay monthly, which is why Symple Lending recommends you pay more than the minimum payment on your credit cards.
Interest is the money a lender charges you for the privilege of using their money. All loans generally have some form of interest attached. In the case of credit cards, it is a monthly fee, and in other loans, it is determined by your credit, the prime interest rate and other factors.
Variable interest rates change with the prime rate throughout the life of your loan. Fixed interest rates stay the same during the life of your loan.
Lenders also charge fees. Some examples are:
- Origination fees
- Late fees
- Prepayment fees
- Default fees
These fees can be paid upfront, out of the loan amount or as a one-time payment. Make sure you look at the fees before taking out a loan. Some are more competitive than others.
Avoiding Loan Costs
Fortunately, there are ways to avoid some of the higher costs of borrowing money.
Finding the lowest interest rate is always a good way to avoid high-interest loans. You can also pay more than the minimum payment, which will save you money because you can pay off the loan faster.
Prepaying the loan is also a good way to reduce your fees on personal loans and credit cards. If you find yourself with extra money, you can put that towards your loan.
Avoiding late fees by paying on time can also save you money. Just make your payments on time. You can also shop around for a loan and negotiate the fees. Many companies will allow you to negotiate or renegotiate a loan.
Avoiding the high cost of borrowing money is not difficult as long as you make an informed decision about your loan. Make sure you shop around and carefully read any documentation that your lender gives you.