When you apply for an emergency loan or any other kind, the lender must set forth specific terms before finalizing any contract. It’s up to you to take a fine-toothed comb to those details, paying close attention to any hidden fees or surprise clauses that could end up really costing you. Read on for what loan terms are and why it’s important to review them.
What Are Loan Terms?
Loan terms specify the amount of time you have to repay the loan, in addition to your monthly payment, interest rate, and the amount of interest you’ll pay overall.
Loan terms can also include any fees, penalties, or special conditions associated with the loan. In other words, they spell out what is expected of the borrower as well as the lender. These loan conditions and guidelines are included in the final loan agreement.
Repayment Period
This is how long you’ll have for loan repayment. The repayment period can range from 30 years for a mortgage, to four years or more for a car loan, for example.
Interest Rate and Fees
The interest rate is the rate of interest to be paid for the loan. Meanwhile, loan fees are what the bank or other lender can charge you for the loan. The overall cost of loan repayment is your annual percentage rate (APR), which is annualized over the course of a year.
Look out for origination fees, which are used to cover loan processing costs, and check for prepayment and late-payment penalties, application and annual fees, and, where applicable, closing costs. Ultimately, it’s up to each lender whether, and when, to charge these fees.
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Other Loan Terms and Conditions
It’s understandable if, when it comes to loan terms, your chief concerns are costs and your loan repayment period. Still, there are other possible loan terms of which you should be aware. For example, pay attention to whether there’s a balloon payment in your contract. This is a one-time payment that is due at the loan’s end. And if you aren’t prepared for it, it could be challenging for you to get the cash to make your last payment on time.
Also look for any clauses that contain the word “default,” as that will specify the conditions under which the lender would impose recovery strategies due to missed loan payments. In other words, the terms will specify when you’ll be considered in default.
One Final Review of Terms
It’s imperative that you carefully review the above terms before signing off on a loan. For one thing, you want to know exactly what your obligations are in terms of loan repayment. For example, you need to know whether your loan payment is due on a certain date each month. Otherwise, you may incur late fees and risk a big hit to your credit.
Another reason for review is that you get a chance to determine whether a loan is the right one for you — before it’s too late. Don’t be so excited to get a loan that you overlook something in your loan terms, such as a fee or other condition, that doesn’t sit well with you. You can always turn down the offer.
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Conclusion
In summary, it’s crucial that you read loan terms very carefully to ensure that they align with your financial objectives and capabilities. In other words, you don’t want to get up. And be sure to check for any hidden fees or charges that could affect the cost of borrowing overall.
