The threshold for taking out a loan is much lower than 5 years ago. This is mainly due to the low level of interest rates. However, we have noticed that many people still pay too much for their consumer credit. Here are some pitfalls you can avoid.
1. Take out a bad loan
More and more banks are adopting digital credit. It is therefore very easy to take out consumer credit online. There is a downside to this however: there is no one to advise you and guide you in the right direction. However, this is crucial if you want, for example, to take out a car loan or a home improvement loan. The interest rate of these products depends on the project you want to finance. By not being careful, you risk asking for bad credit and paying far too much interest.
Take the example of a home improvement loan. You therefore have two options: the normal home improvement loan and the green loan. If you opt for the renovation loan while you are eligible for the green loan, you will pay hundreds of dollars in excess. Our comparison shows that the cheapest green loan is up to 80 basis points cheaper than the cheapest renovation loan.
When a person takes out a loan online, it is difficult for them to know whether or not they are eligible for a green loan. Each bank has its own criteria. While a bank will ask that at least 50% of the amount of the credit be spent on energy-efficient renovations, another bank may ask that 80% of the amount be spent on it.
The reasoning is the same if you take out a car loan. You have to check the conditions to make sure you choose the right credit. The price depends on the type of car. Thus, a credit for a new car is cheaper than for a used car. And that’s where there is a catch. Each bank has its own criteria for used cars. One will consider a car as used after two years of use while another will consider it after three years. This does not facilitate the comparison of car loans.
There are great rates for people who buy an energy efficient car. For example, Bestiest Bank adapts its rate to the type of car you buy. Thus, the bank makes a distinction between electric cars, those with LPG installation and cars that save CO2.
2. Take out a loan from the same bank
A person who has established a relationship of trust with a bank is less likely to look at financial offers from other banks. Yet it is by looking at offers from other banks that you can save a lot of money. Indeed, when you take out a loan with your bank, you are not sure of having the lowest rate on the market. For example, the difference between the cheapest and the most expensive personal loan can be up to 5 percentage points or more.
Let’s take an example: if you want to borrow 10,000 dollars (for a period of 48 months), you can save up to 1,100 dollars by opting for the cheapest credit. Do you want to know who offers the cheapest credit? Compare it here.
3. Respect the duration and amount of the loan
Some people who want to take out a loan have a firm idea of how much and how long they want. You would have to be a little more flexible to save money on your personal loan. Indeed, the APR of such a loan strongly depends on the amount and duration of the credit. The difference can sometimes reach a few percentage points.
For example, a person who takes out a personal loan of 15,000 dollars from Fairfree Finance, and repays this amount within 48 months, will have an interest rate of 5.9%. By shortening this duration to 42 months, the rate will then rise to 4.49%. This represents a saving of more than 600 dollars.
For other consumer loans (car loans, home improvement loans, etc.), the duration and amount of the loan have a very small impact on interest. Banks generally apply a uniform rate for all credit terms and amounts.
4. Choosing a loan too quickly
Now it remains to be seen whether credit is really needed. After all, it comes with a number of obligations. For example, the bank expects you to repay part of the amount borrowed each month. If you do not respect your commitments, you could find yourself on the black list. The bank may then charge you additional fees in the form of late payment interest.
It will always check you if a credit is the right choice for you. There are other alternatives: saving to reduce the amount of credit or paying for the entire desired product.