Consumer loans: 8 things borrowers need to know

(Baonghean.vn) - Consumer lending is a popular product and service that meets the needs of the majority of people, but not everyone understands the steps in the lending process. To ensure their rights, borrowers need to carefully study the following to avoid financial risks.

1. Types of consumer loans

Secured and unsecured loans are currently two popular forms. A secured consumer loan is a loan in which the borrower uses valuable assets such as a car, real estate, etc. The interest rate is usually lower than unsecured loans.

For unsecured loans, customers need to prove their financial capacity and stable income to ensure debt repayment. Because the lender bears many risks, the interest rate of this form is often higher.

Borrowers do not need collateral does not mean they can avoid paying the debt. The lender can sue in court to enforce the judgment, sell the borrower's assets to recover losses. The borrower's credit history will be blacklisted at the Credit Information Center at banks, making it difficult for the borrower to access credit if there is a subsequent need.

2. Study the contract carefully

Loan conditions are currently quite open with many attractive incentives, but that does not mean there are no certain binding terms.

If you find financial terms difficult to understand, you need to ask the consultant for clarification. When you do not understand, it can easily lead to complaints and disputes between the borrower and the lender.

There are 6 important points in the contract that the borrower must read carefully: loan amount, disbursement method, monthly bank interest rate, interest calculation method, late payment penalty or fee payable when completing the loan contract before the due date. You must know the rights and obligations of each party before signing the contract.

3. Interest rate discrimination

There are two ways to calculate personal loan interest. The first is based on the principal balance calculated on the initial loan amount during the loan term.

The second method is to calculate interest on a decreasing balance, only calculating the actual amount owed, after deducting the principal paid in previous periods. Borrowers will benefit more when negotiating with banks because they only have to pay interest on the actual amount used.

Interest rates on consumer loans also include fixed and floating. That is, during the entire loan period, the interest rate will not change or will change periodically depending on market developments. You may be subject to lower market interest rates, but you may also be subject to higher interest rates.

4. Understand the debt repayment method

There are two main methods of repaying personal consumer loans: calculating based on the initial balance and calculating based on the decreasing balance.

If repayment according to the original balance is only applicable to unsecured loans, you will have to pay the principal and interest at a fixed rate.

With the method of paying by decreasing balance, each month you will have to pay the principal and interest calculated based on the actual debt. The interest amount will decrease according to the remaining debt each month.

5. Be careful when borrowing during promotional programs.

The cheapest interest rate loans are often during year-end promotions. However, unsecured loan borrowers need to carefully consider the loan conditions, fees such as early payment, late payment fees, etc. Especially, each preferential interest rate package has only one period, after that is the floating interest rate.

Therefore, do not be too greedy for the initial interest rate during the promotional period and forget about the interest rate percentage that will be applied after the period. If necessary to borrow, customers should proactively consider carefully how the post-promotional interest rate will be calculated in addition to the preferential interest rate to clearly state in the contract.

6. Estimate the ability to repay debt in the long term

When borrowing money for a long term, the interest rate will be adjusted up or down depending on the market situation and the policies of each bank. If not well prepared, the borrower will be put in a passive position because there is a possibility that the interest rate will increase over time.

Therefore, you need to carefully estimate your ability to pay before deciding to borrow. Customers should consider the interest rate conditions and monitor market interest rate fluctuations to anticipate whether they can pay off a large amount of principal over a long period of time.

7. Penalties for consumer loans

Financial companies and credit institutions must balance mobilized capital, interest rates and terms, so they will have some penalty fees in some cases.

Currently, most financial institutions charge early repayment fees, however, each institution has a different calculation method. In addition to early contract liquidation fees, financial institutions also apply many other penalties such as overdue debt repayment, late payment interest, recovery of preferential interest rates due to early repayment, etc.

You should pay attention to the above basic issues so that a consumer loan is truly an effective financial solution.

8. Keep documents

After signing the contract, carefully keep your consumer loan file including invoices, customer cards, documents, contracts, receipts, etc. to regularly monitor your personal credit statement; understand your credit status and prevent any risks if any problems arise.

If any related errors are detected, customers should directly contact and immediately notify financial companies via hotline, website, email to receive support to resolve and prevent similar situations from continuing to occur.

Ngoc Anh

(Synthetic)