Q. I continually get internet pop-up ads for financial loans. I am considering a loan, but not sure who to contact. What advice may BBB provide?
A. If you need some extra money for a major purchase, home repairs, or even to pay off high-interest debt, you may be considering taking out a loan. Don't get yourself into trouble by getting a loan without thinking it through and doing the right research. Better Business Bureau has these tips for you:
Maintain a Good Credit Score. Different lenders will have different credit score requirements for issuing loans. If you are not confident about your credit score, try to build your credit rating before you apply for a loan. Using your credit card will improve your credit score if you use it responsibly, so charge small purchases that you are positive you will be able to pay off at the end of the month. Do be aware that every time you apply for a loan, there is a note left on your credit score. Lenders checking your credit score can see if you have multiple loan applications, which may give the impression that you are unreliable.
Do your Research. The first things to find out about any loan are the annual percentage rates (APR) and the total amount repayable (TAR) from each lender you are considering. Ask about the monthly payment and see how adjusting the length and amount of the loan can change the payment. Also, ask if it is a fixed or variable rate loan. Make sure you understand all potential fees, including if there is a fee for early repayment of the loan. Find out if you will be able to refinance the loan if rates change.
Get a Fixed Interest Rate Loan. By getting a loan with a fixed interest rate, the lender will not be able to raise the interest rate throughout the loan. When you are locked into a fixed rate, you are protected against fluctuations in the economy when most lenders raise interest rates. If the interest rates decrease below your fixed interest rate, you can look into refinancing as an option to pay a lower interest rate.
Know Your Budget. Only take out a loan for as much as you need, even if the lender is offering to loan you more. Borrowing more money than you need may lead to overwhelming debt in the future. Analyze your budget and calculate the monthly payments you will be able to afford. Do not take out a loan for more than you can afford. Avoid taking out multiple loans.
Pay off the Loan Early. If you are able to, pay off the loan early. By paying in a shorter period of time, you will clear your debt and decrease the amount of interest you will pay over time. If the lender charges a fee for early payment, figure out if the savings in interest makes up for the fee.
Carefully Read the Contract. Before signing your contract, it is crucial to read and fully understand the document. Ask questions and make sure you understand all the details of the loan including costs, charges and fees, and the terms and conditions. Do not sign a contract with any blank sections.
Avoid any lender who:
- Tells you to inflate your income on your loan application.
- Pressures you to apply for more money than you need.
- Pressures you into monthly payments you can't afford.
- Pressures you to sign documents you haven't read.
- Promises one set of terms verbally and gives you a different set of terms in the contract with no legitimate explanation for the change.
- Tells you to sign blank forms that they will fill in later.
- Says you can't have copies of the documents you have signed.
- Asks you to sign a loan that has credit insurance or other extra products you didn't want.
- Requests an upfront fee prior to obtaining your loan.
- Promises that you'll get a loan regardless of your credit problems.
- Asks you to wire transfer money or pay an individual.
Jim Winsett is president of the Better Business Bureau in Chattanooga.