Common Reasons Borrowers Underestimate The Cost Of A Loan

Common Reasons Borrowers Underestimate The Cost Of A Loan

What does a sleek new car, a dream vacation, or extra cash to get by have in common? You can get a loan for them.

“The interest rate isn’t that bad…I can totally manage that monthly payment…” you think. However, a year later,  regret comes because you realize you’ve paid significantly more than you bargained for.

So, why do we constantly underestimate the true cost of loans?

1. You focus too much on the shiny object

It’s normal to get excited about the things you want, but they can also distract you from potential future financial problems after taking out loans for them.

Consider the payment you have to send every month to your licensed money lender online. Just like that, it becomes a small problem, a classic “want vs. need” battle, and the heart usually wins.

2. You underestimate the ‘extras”

A loan is sometimes like ordering a pizza: you’ve got your base cost (the pizza itself), but then come the ever-tempting toppings (aka fees). A few add-ons of pepperoni slices won’t hurt, right?

There might be processing fees and origination fees, and if your credit isn’t stellar, you could be looking at a hefty prepayment penalty if you want to pay off the loan early.  These ‘toppings’ can quickly add up and leave you with a bill way higher than you expect.

Let’s say you want to borrow $10,000 with some added fees. You might assume it’ll cost you an extra $1000 or so, but those fees can easily make a surprise appearance and double the extra cost!

3. You have an “I’ll Figure It Out Later” mentality

People procrastinate in a lot of things, even loans. Those that do often downplay the extra charges, but news flash: life gets messy sometimes. Like a termite, that interest eats away at your budget if unexpected expenses crop up or your income fluctuates.

In short, it’s no longer a minor inconvenience. Yikes!

4. You can’t change variable rates

Like the weather, you can predict adjustable or variable interest rates, but they can change with the wind. If you’ve got a loan with a variable interest rate that starts low, you might feel like a financial superstar at first. But then the economy shifts, interest rates go up, and suddenly your monthly payment gives you a mini heart attack each time it’s due.

5.  You pay more over time

Imagine buying coffee every day for a year. It may not seem like much, but $3 a day for coffee adds up quickly when you do the math over a year.

A simple math that’s easy to forget is you’ll pay more interest over time if you borrow money for a longer time. The low monthly payment on a long-term loan may seem like a good deal, but you could pay thousands of dollars more in interest over the loan’s life.

Final Thoughts

Getting a loan, even with a trusted one like a Ubi money lender, is a big choice that you shouldn’t make quickly. It’s up to you to learn about how borrowing money really works by reading the small print.

You’ll be better off financially this way. You know, having fun with the brand-new thing without getting buried in a mountain of debt. Hope this helps!

 

Simon

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