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Personal Finance

What to watch out for regarding interest rates

When you take a loan, the basic condition you agree upon on the contract is to pay back the money and its interest without fail in the stipulated time interval. But the interest rate is one aspect every money lenders pitch on for profit. In other words, that is the profit making aspect in the whole deal. Hence the person who applies for the loan should watch out for regarding interest rates.

Regarding what to watch out for regarding interest rates, take care to keep off from predatory traps of lenders. It is often the poor and the disadvantaged who are falling pray to such money squeezing agencies. And these very people are ultimately undermining the stability of the entire community by draining their precarious savings accounts and forcing them out of their shelters. Studies conducted about such a scenario have brought out certain observations that specify what all to watch out for regarding interest rates.

  • Look out for “balloon payments”. It is paying a large amount – thousands of dollars – which is due at the end of the mortgage term.
  • Watch out for the payments that start off small but assumes a bigger proportion towards the end. Also called variable payments.
  • It is better to avoid loans with higher interest rates. It is the main issue associated with any loan and something a borrower always needs to look out for.
  • Keep an eye on payment penalties. This can be a nagging factor if you pay off the loan earlier or sell your home.
  • Avoid attaching all your bills with the mortgage. Such a move may be insisted by a predatory lender because they will be able to issue a much bigger amount at a higher interest rate.
  • It has been found that, while issuing loans for people with poor credits, lenders tend to issue them subprime loans even if they are qualified for obtaining a lower rate loan. While this is a legal issue as well, it is advisable that such high-risk customers carry a copy of the credit report along while applying for the loan.
  • Above all, while agreeing for loans, take time to understand the fine print and never sign any blank papers or papers that are incompletely filled in.

These are some general points to watch out for regarding interest rates and are not the end of the list of such circumstances that could possibly occur in the borrow-repay equation. The basic thing one need to pay attention is not to allow the lender to cheat you in any aspect that would eventually result in loss of money. If logically and intelligently managed, such pitfalls can be avoided meanwhile having a loan with a reasonable interest rate. It is all about being smart and using your discerning senses!