Why You Need to Understand and Read the Fine Print of Your Loan

Getting a loan is not always easy, yet sometimes it needs to be done if sudden emergencies that require immediate payment come up. If you’ve taken the steps needed to qualify for a loan and all you need to do is sign on the line, wait before you do. Every loan is going to have some small print that you’ll need to read which will detail your obligations to the lender and the lender’s rights if you fail to meet them. Here are a few things that are usually covered in the small print.

Your Personal Information Requirements and Usage

First and foremost, lenders usually need to confirm that the borrower is who they say they are. As a result, the small print will usually detail what kind of documents they will need from the borrower, and how the information they collect will be used. Usually states or the federal government will set laws dictating how lenders can use this information, but you should read the fine print very carefully to make sure the lender is not being vague about how they use your information.

The Interest Rates Of Your Loan

Every loan is going to have a cost, and the ultimate cost for what you borrow will be determined by various fees and interest rates. Most online loans from direct lenders will have their interest rates listed in the APR format, but some lenders may list them as weekly or monthly interest rates. Borrowers should be advised to check on the final cost of the loan with fees and interest to ensure there are no surprises. Do your research to find a reputable lender with transparent fees and payment schedules.

Your Payment Schedule And Prepayment Details

Another detail to pay attention to in the loan’s fine print is a schedule of exactly when each payment is due and how your loan will be paid off. If you have an amortizing loan, those payments will consist of both interest and principal ensuring that the loan is completely paid off by the final date. But if your payments are interest only, you may end up having to make a massive final payment paying off both interest and principal. Also, while many lenders tell borrowers they should pay their loan off ahead of schedule, some may try to sneak prepayment penalties into the fine print, so keep an eye out for that if you’re going to be repaying it early.

Personal Guarantees Associated With The Loan

There are essentially two kinds of loans you can get. They are secured and unsecured loans. With secured loans, you usually will see upfront which of your personal assets the lender may decide to hold or place a lien on without needing to read the small print. But with unsecured loans, which theoretically don’t require any collateral, there still might be details in the fine print about a personal guarantee that you may be required to sign. This could put personal assets at risk in the event that you trigger a default.

Basically, the small fine print will contain all the binding terms of your loan, and failing to read them in their entirety could bring up unexpected surprises if you sign without looking all of them over. That’s why before you decide to apply for any loan, you should always read your state laws first to make sure the lender’s terms are not running afoul of them. If you believe the lender has violated a state law, the office of Attorney General or the state’s financial regulation department will usually have an action you can take.