How to Avoid High Interest Rates on Emergency Loans
Emergency loans from a licensed money lender can your your savior when you fall short of funds.
When you least expect it, life can catch you unaware and require you to sort out an urgent financial need. It may be an unexpected car repair bill or even a job loss, but whatever the reason, money will be needed urgently.
However, the outrageously high interest rates can make the repayment a financial burden. But, with proper planning and wise judgment, you may never fall into the trap of high interest.
6 Ways to Avoid High Interest Rates on Emergency Loans
1. Know Your Options
Don’t rush into obtaining an emergency loan without first understanding your options. Not all loans are created equal. Some loans cost more than others. For instance, bank personal loans or loans from Singapore-licensed moneylenders will be less expensive in interest than from illegal moneylenders or payday loans. Knowing your options allows you to make an informed decision that best suits your financial situation.
You can likely get a personal loan with low interest if you possess a clean credit score. But if your credit score is not as clean, do not worry. Some licensed moneylenders charge reasonable interest even to less-than-perfect borrowers. The trick is to shop around and see what possibilities you have and then make up your mind.
2. Borrow Only What You Need
If you are concerned about finances, you should not borrow more than you require safely. Usually, the bigger the loan, the more you will pay. More loans also mean more interest, and you must know what you are prepared to pay for your emergency.
Therefore, if you need $2,000 for a financial emergency, resist the temptation to borrow more even if you qualify. Borrowing only what you need reduces the expense in terms of interest and prevents you from overwhelming yourself with unmanageable debt. This responsible approach puts you in control of your finances.
3. Read and understand the details of the loan contract.
Interest rates are usually not the sole determinant of a loan’s cost. Other charges, such as processing fees, late fees, or prepayment fees, can also make a loan expensive.
Therefore, always carefully read the terms and conditions of any loan contract very thoroughly before signing. This cautious approach ensures you are fully aware of all the costs involved.
Don’t hesitate to ask the lender to explain if something is unclear. A reputable moneylender will explain all the charges the loan carries. This way, you will avoid nasty surprises in the future.
4. Consider a Secured Loan
If keeping interest rates low is your priority, a secured loan may be a good choice. While unsecured loans depend only on your credit history, secured loans are based on some form of collateral, such as your property or car.
Since the lender isn’t exposed to as much risk, they’re usually more likely to offer lower interest rates.
However, secured loans have a drawback where, if you default, you will lose collateral. Therefore, if you are sure you will repay the loan, a secured loan is cheap to get through your emergency.
5. Improve Your Credit Score
While improving your credit score takes time, it’s worth the effort. Usually, your credit score plays a huge role in determining the interest rate you’re offered. If your score is low, you’re more likely to be charged higher rates.
Therefore, start by paying your bills on time, reducing your debt, and avoiding new credit applications unless necessary.
Importantly, even small increases in your credit score will save you much money on the interest rates you’ll qualify for in the long run.
6. Build an Emergency Fund
While this will not rescue you when you need funds urgently, it’s still the best way to avoid borrowing a high-interest loan in the future. Therefore, save some money every month until you reach your target. For instance, have three or six months’ worth of living expenses as an emergency fund kit.
Having that cushion of emergency savings means not having to scramble and borrow when the unexpected arises. And if you must borrow, you will likely only need to borrow small balances, saving you less in interest cost.
Final Thoughts
Emergency loans are a godsend if you must use them in an emergency, but they are disadvantageous if you obtain them at exorbitant interest rates.
However, applying the above strategies can enable you resolve your urgent financial need using an emergency loan without falling into the trap of expensive interest rates.
Therefore, don’t fear or hesitate to borrow an emergency personal loan from a licensed moneylender. They will guide you in every step to ensure you get the loans at low interest.