According to current reports, the average US household credit card debt including personal loan debt stands at $15,809, counting only those families that carry debt. Based on Federal Reserve statistics and other data from the government, the average family owes $7456 on their credit cards, taking into account only the indebted households, the average balance rises even higher. As per reports, average credit card debt is at $15,709, average mortgage debt is at $156,298 and average student loan debt at $42,987.
All over, the American consumers owe $11.85 trillion in debt which is a sharp increase o 2% since the last year, $890 billion in credit card debt, $1.19 trillion in student loans and $8.17 trillion in mortgage loan debt, which saw an increase of 7.6% since the last year. Hence, as there is an increasingly large amount of rise in the total and average level of debt, it can be easily said that there are some mistakes that are continuously being committed by the borrowers. Read on the concerns of this article to know more on the vital things to watch out for before taking out a loan.
Traps to avert while taking out a personal unsecured loan
Taking out a new loan can be an intimidating and daunting task as there are too many traps that you need to take care of in today’s market. While some traps are not so dangerous, some others are pretty costly. Here are some of the traps that you should watch out for before taking out personal unsecured loans.
- Not deciding the amount: When loans are actively sold out to you, you get tempted to take out an amount which is much bigger than what you had decided in the beginning. The lender will often convince you to take out a bigger amount and increase the repayment term to reduce the monthly payments. But remember that this is nothing but a trap to make you pay more in the form of accumulated interest rates that keep racking throughout the term of the loan.
- Opt for a loan with fixed rate: Most personal loans carry variable interest rates and the rates are tied to the different economic factors. But if you don’t want to be subject to changing monthly installments, fix it soon. Always look for a loan that carries fixed rates so that you can be at least sure about the monthly payments that you need to make every month.
- Compare and contrast the APR: The Annual Percentage Rate or the APR is the basic or the standard way of comparing the cost of the loan over a year. However, the APR can easily be manipulated by the lender whenever he wants to. Hence, before taking out a loan, you need to be careful about comparing the APRs. Make sure you’re able to afford the monthly payments which you choose.
- Look at the terms and conditions: It’s not only the cost that you have to check while taking out a loan but you also have to go through the terms and conditions. This is often called the fine print of a loan or any kind of financial document. While the lender may inform you about each and every favorable detail about the loan, he might ignore the most vital information that you should know as a borrower. This information is there in the fine print of the loan. Read the documents carefully in order to be aware of what awaits you in the long run.
- Factor in the origination fees: The total cost of the loan, the TAR is the most vital figure that you should take into account. However, make sure you also want to know whether this also factors in the origination fees. While you compare loans, ensure you include the origination fees which are charged by each and every option that you consider. All these fees will factor the total cost of the loan and if you miss them you might find some hidden fees arising later on.
- Consider alternatives of unsecured loans: You need to compare an unsecured loan with its best alternatives. The most mentionable alternative is credit cards if you wish to get a short term interest rates. If you have a good credit score and you think that your card with carry a favorable rate, you should opt for credit cards after comparing and contrasting the interest rates.
Last but not the least; avoid all sorts of gimmicks that the lenders plan for you in order to make you accept their loan offers. Be on your own and help yourself take your own decisions. Whichever loan amount you wish to take out, make sure you’re able to repay the entire amount on time to avoid falling in debt. You can learn more on the different debt relief options available for you.