Personal loans have outpaced wages in the UK and grew by 25% since 2013-2014. The situation is similar in the United States, where personal loans are among the fastest-growing types of credit.
People are looking for ways to make ends meet, start a business, or get things that they want. They turn to different types of loans to do so.
Many people look to borrow money from a moneylender rather than go to a bank or traditional lender. There are things that you should know about moneylenders. You could wind up in worse financial shape if you borrow money and don’t understand what you’re getting yourself into.
Read on to find out all you need to know before getting a loan from a moneylender.
What Is a Moneylender?
You could define a moneylender as anyone who lends money and charges interest until the loan is paid off. There is a lot of leeway in terms of who is a moneylender.
Technically, you could define traditional lenders like banks or credit unions as moneylenders. They aren’t considered moneylenders because they don’t charge high-interest rates for their loans.
The term moneylender applies to lenders who charge high-interest rates for their loans. Payday loans, loan sharks, and lenders who offer no credit check loans or low credit loans qualify as moneylenders.
Moneylenders usually offer short-term high-interest loans for a small amount of money ($100 – $1000). The terms of these loans are that you have to pay them back with fees within a few weeks.
Not understanding the terms of these loans could get you into trouble. You could sign up for a loan that you can’t pay back, so you have to roll it over into another loan. That entails more loan fees, adding to your debt.
That makes it difficult for people who are already struggling to get by to ever pay the loan back.
Another type of loan that falls under this definition is a hard money loan. These are loans that are secured with property. This is used by real estate investors who want to bypass mortgage lenders.
The loan is secured with the property, so if the investor misses a payment, the lender takes over the property.
How to Get a Loan Without Losing Your Shirt
As you can see, there are a lot of scenarios you want to avoid when getting a loan. You want to make sure that you have a reputable lender and the loan terms work for you, not for the moneylender.
The process to get small business loans and personal loans are generally the same. You have to have good credit and show a history of being responsible with credit. Here are the steps you should take to get a loan.
Determine the Amount and Reason for the Loan
Before you take out a loan, there should be a good reason for it. You’re going to pay interest and fees, and spending that money on something frivolous isn’t worth it.
When you leverage someone else’s money, you want it to do something for you. In the case of starting a business, you use that money to earn more.
In other cases, you’re not thinking about growing or putting yourself in a better financial position. You’re using the money to get by.
You only want to take out the amount that you need. To determine the amount of money to borrow, look at your budget, the amount required, and the payment terms.
Clean Up Your Credit Score
Most lenders require some kind of credit check. The ones that don’t assume that you’re a credit risk, which is why they charge high rates and a lot of fees. The best thing you can do is to clean up your credit score before applying for a loan.
You want to make sure that you make all debt payments on time, and you have a low credit utilization rate. If you have a few credit cards that are maxed out, then you’re less likely to be approved for a loan.
Find a Lender
Finding a lender is much easier said than done. Take your time and shop around for loans.
Should you use a moneylender? It depends on your circumstances. You need to tread carefully with moneylenders. Be sure to find a moneylender that’s registered to operate legally. That ensures you have some recourse if you’re getting ripped off by the lender.
The bottom line is that you should only use a moneylender if you are absolutely certain you can pay the entire loan and fees back in a short period of time.
That’s a slippery slope if you take out a loan and the money you were expecting to come in never shows or is late.
Look at the Terms of the Loan
Whether you use a traditional lender or a moneylender, you have to read the terms of the loan. Don’t just look at the installment amounts, but look at the total cost of the loan.
Add up the fees, interest, and principle over the life of the loan. Then take a look at the installment payments and see if it’s a good match for you or not.
Get a Loan That Works for You, Not Against You
The lending industry has changed over the last 10-15 years. Wages haven’t increased while the cost of living has. That leaves many people turning to a moneylender to pay bills or finance a purchase.
You have to look carefully at the terms of the loan and calculate the total cost of the loan. Otherwise, you’re getting a loan that is more expensive than you think.
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