In the days of yore, most people who borrowed money did so from their primary bank. This is still the way lots of people do their borrowing. Of course, credit cards are another type of borrowing that has become very familiar for most of us.
But we’re talking about real borrowing of sums, not having individual payments credited to an account. People borrow this kind of money for larger purchases and expenses, like buying a house, buying a car, or expanding a business.
If you’re in this situation, you want money without having to pay so much for interest and fees. Fortunately, the internet has spawned a whole new lending market, and the competition therein has driven down prices. We’ll talk about how to find the best personal loans online in the following post.
First of all, it’s important to note that there are a billion different lenders on the internet. Not all of their offers are created equally, so you’ve got to learn to differentiate the wheat from the chaff. The loans on offer should be pretty easy to understand if you’ve ever borrowed money before.
If you have not, we can explain the situation pretty quickly. The basic parts of a loan are the Premium (the amount of money you borrowed, which you now have to repay), the Term (The amount of time you have to pay back the loan), the Annual Percentage Rate (APR: a combination of interest and fees), and the Monthly Minimum payment.
Premium – This one’s easy. It’s the amount of money you ask for when you request loans. ‘Nuff said.
Term – This is also pretty standard, but there are lenders who make it tricky. A loan term is the amount of time within which you are required to repay your loan in full. For large loans like mortgages, this will be fifteen or thirty years.
For smaller loans like car loans, you might be given five to seven years to pay back the money. A good lender will give you a reasonable amount of time to give their money back, and will not penalize you for paying it back early.
This is an important point to note. Skeezy internet lenders who charge you fees for early repayment are lenders you don’t want to work with.
APR – The APR is a combination of the yearly interest and fees you’ll pay for the privilege of borrowing a lender’s money. For low-risk, high quality loans like mortgages, the APR will be very low, because the lender knows you are unlikely to default on the loan.
For high risk credit card debt, the APR could be in the 20’s or 30’s! That’s crazy high, and you don’t want to take on that kind of debt if you can possibly help it.
Monthly Minimum Payment – Some internet lenders try to make this the most important factor, but it’s not. An affordable minimum monthly payment can obscure the fact that you’re paying way too much for your loan over the life of the loan. You want to be able to afford the monthly payment, of course, but the APR is the more important factor.
If you find a reputable lender who seems legit in all of these categories, congratulations, you’ve found a good online lender! Borrow with confidence. But make sure you find the lowest rates, borrow only what you need and repay your debts on time.