money

Read between the lines while taking a loan

It is very important that you understand what your bank is offering you in terms of financing

14:23 May 12, 2018

If you’re financing anything or taking out a loan, you will come across several key terms that you might not be fully aware of their meaning. Winging it through the process is one way to go, but it could cost you a lot of money.

It is very important that you understand what your bank is offering you in terms of financing. Interest rates for example are not the same as annual percentage rates (APRs). You repayment terms that might appear to be standard can be negotiated to help you get out of the loan with minimal losses, if you need too. For larger purchases, making an argument for a lower rate can mean thousands of dirhams in saving over the life of the loan.

The best way to know the costs is to ask your bank representative to give you a breakdown of all costs and how the rate is calculated. Even better, get a schedule of payments and a total for the amount you will end up paying.

That is why whether you’re looking for a new credit card, an auto loan or a home mortgage, make sure you take your time to explore all the aspects of your offer. In addition, compare several offers. Many people have an unquestionable loyalty to their bank based on convenience. But loans and debt in general are like any other commodities, you get a better deal if you shop around. In particular, pay attention to the following points.

All costs

When you ask about interest rates, you will be quoted a certain percentage. That is not the entire price you will be paying for the borrowed money, however. In many cases, there are bank fees and charges that are not necessarily upfront. If you’re setting at home, using an online calculator or an actual one to figure out your cost and monthly payment, you might be off base.

The best way to know the costs is to ask your bank representative to give you a breakdown of all costs and how the rate is calculated. Even better, get a schedule of payments and a total for the amount you will end up paying.

Changes based on term

You’re more likely to get a lower rate if you will pay the loan over a shorter period of time. If you can afford to do so especially for personal loans and auto loans, go for it. You don’t want to pay an extra year of interest, if the difference is marginal and affordable in your budget. In addition, think of additional loans that you might be planning. If you’re considering buying a home or financing another major purchase in a couple of year, you better get this one paid off soon.

Again, ask to see how your rate and monthly payment change based on term. It is your right to ask for multiple options and figure out what works best for you. In addition, compare different banks for the same loan. Only make sure that you’re comparing apples to apples by checking the details of your offer.

Perks and benefits

Even if you are not planning on paying off your loan early, it is always good to make sure that you have no prepayment penalties or fees. In addition, look if your bank offers any additional benefits or perks along with your financing. Anything that is included could save you a bunch of money over the life of the loan. Typically credit cards come with a bunch of freebies that vary significantly from one bank to another — and actually from one card to another.

But on a personal loan or an auto loan, see if your credit insurance is free or the car loan comes with maintenance or travel benefits. If these perks are valuable to you, this could be enough reason to go with one bank over another. Many banks, however, will want you to transfer your payroll to them, if you’re taking out a substantial loan. So weigh this change vs. the convenience as well.

The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.

Know your debt terms

• Understand the jargon
• Know how your term impacts rate
• Ask for multiple offers
• Look for included perks