If you are in need of a small loan, for whatever reason, you may be wondering how you will afford it, or how long you will be paying it back for. It is important to get to grips with the terminology of a loan and have it all worked out on a repayment plan so that you know exactly how much money you need to pay each month.
Without this, you could have mismanaged finances, spiral into debt, and ultimately get bogged down with a loan you never fully understood.
Some loan providers make it difficult to understand how interest rates work in your loan. The Balance explains interest loans succinctly, “An interest rate is the percentage of principal charged by the lender for the use of its money. The principal is the amount of money lent. The bank applies the interest rate to the total unpaid portion of your loan or credit card balance.”
This is different from APR,
“The APR stands for annual percentage rate. It allows you to compare the cost of different borrowing options.”
When you are comparing loans, you might find it useful to use an online provider that has an easy to use calculator on its website. The pioneering original online lender Wonga championed the use of the ‘slider mode;’ allowing user to slide the pointer up and down to determine how much you need to repay. They say, “Visit our website and use the sliders to choose how much you want to borrow, and how long you want to borrow it for. As a new customer, you can borrow between R500 and R4000, for between 4 days and 6 months. You can see exactly how much the loan repayment amount will be upfront.”
This really makes the difference when applying for a loan, as it is laid out right there in front of you, allowing you to determine whether it is something you can afford or not.
Of course, all reputable loan providers will have a duty to explain to you how the loan works before you get it, and they also need to ensure you understand the terms of the loan before they are willing to transfer the money and make the deal.
Ultimately, the application for a loan is in your hands. You must ensure you understand all aspects of the loan – even small loans, before you sign on the dotted line. If not, it is only you that will suffer as a result!
