Borrowing money is always a risk, but when done responsibly it can benefit you in a lot of ways. If you have extra expenses to cover that you haven’t budgeted for, a short-term loan can help you bridge the gap and make sure that you don’t miss any bill payments. As long as you plan properly and make sure that you can pay the loan back, you will be absolutely fine.
Taking out loans and paying them back on time will also build your credit score, which is crucial when you come to get a mortgage or take out a loan on a car. This is especially important if you are trying to build your finances and make plans for the future.
Unfortunately, there are a lot of irresponsible lenders out there that will trap people in high-interest loans with confusing terms and penalties for early repayments. These loans are not designed to help people get out of a financial bind, they are designed to get people into a spiral of debt so they continue paying interest for years to come.
The good news is, not all lenders are like this and there are plenty of responsible lenders out there. The key is knowing how to spot the good lenders and avoid the bad ones. These are some of the main things that all responsible lenders have in common.
They Give You Time To Think
One of the worst things you can do is sign a contract on impulse, especially if it’s something that involves borrowing money. Responsible lenders will always give you time to think over the loan and make sure that this is what you want to do.
If your lender doesn’t do this, they aren’t being responsible. They should also not pressure you into making a snap decision or use scare tactics to push you into signing up for a loan if you’re unsure about it.
Irresponsible lenders know that they are giving you a bad deal and if you have time to think about it carefully, you will probably decide against the loan. So, they will use pressure tactics to push you into signing the agreement without really understanding it or having time to consider the long-term implications. If you ever feel pressured by a lender, start looking elsewhere.
The Loan Terms Are Set Out Clearly
All responsible lenders have information about the loan set out clearly on their website, so you can see what fees you will be charged and all of the details. If they don’t present this information clearly to you, then it’s not a responsible lender.
As well as the price of the loan, a good lender will also make sure that all extra costs are disclosed to you and broken down in an easy-to-understand way.
Irresponsible lenders know that they are bad news but sometimes try to hide it by making things confusing or trying to cover up exactly how much the repayments will end up being. The chances are, you will get caught out by hidden clauses in the fine-print. Often, they will have big charges for paying the loan back early because they want you to get trapped in the cycle of debt, and they will use confusing language to slip this past you.
A good lender will put everything in black and white and explain the whole process to you before you sign everything. Just check out Wise Loan, for example, and you will see that they provide a lot of information about their loans upfront. The payment terms are clear and if you have any questions, they will be happy to answer them for you.
They Only Lend You What You Need
The golden rule of any loan agreement is to always only take out what you need. Responsible lenders know this and will never give you more money than you ask for.
But bad lenders will encourage borrowers to borrow more than they need, either by accident or design. Either way, it’s worrying if your lender doesn’t know the difference between borrowing an amount that you can afford and borrowing an amount that will lead to financial problems down the line.
If a lender feels like they can push you into taking out a bigger loan than necessary – even though it might sound like a better deal – then they are not being responsible. If someone offers to give you $500 for $100 that you want, you don’t have to take it, no matter how good a deal you are being offered.
Before approaching a lender, assess your finances and work out exactly how much you actually need to borrow. You can use a loan calculator to see how much the monthly payments will be. Stick to this figure so you don’t end up borrowing an amount that you can’t afford to pay back.
The Repayment Terms Are Flexible
Another sign of a responsible lender is that they offer flexible repayment terms. This means that you won’t have to find a lump sum of money all at once and can make regular payments instead. As long as the total amount that you owe doesn’t change, this approach makes it easier for everyone involved.
Irresponsible lenders want you to miss a payment, or default on your loan, so they can charge huge fees and start harassing you. If you ever find yourself in a tricky situation and cannot afford to pay the full amount, a responsible lender will work with you to help you find a solution. But an irresponsible lender will give you a big charge and push you further into debt.
They Offer Good Customer Service
If you are struggling to repay a loan or have any queries about the terms, it’s really important that your lender is there to help. A good lender will provide easy-to-reach customer service and be happy to answer all of your questions so that you can make an informed decision.
With irresponsible lenders, everything is done over email, with no chance to speak to somebody in-person. They will just keep pushing you back and not answering any of your questions until they get their money from you.
So, before taking out a loan, it’s a good idea to call up the customer service line or use the live chat function on their website. See how quickly they respond and how helpful they are willing to be. If they keep dodging your calls, look elsewhere for a loan.
They Have Good Online Reviews
It’s not just the customer service team that you need to think about. Reputable lenders will have great online reviews across a range of websites, including independent review sites and social media pages. This shows that they treat their customers well and it will be easy for you to find out if anyone has ever had an issue with one of their products.
If a lender is bad news, it’s easy to find out these days. You should be able to find some reviews and people will soon tell you if they have had a bad experience. However, bad companies will often keep closing down and then opening again under a new name, so they can get away from bad reviews. So, if a company has almost no reviews at all, that’s not a good sign either.
They Are An Accredited Business
When you decide to take out a loan, you want to know that the company is an accredited business. This means that they are trustworthy and have gone through some security checks. If they are not accredited with a major finance body, it’s probably best to look elsewhere because responsible lenders will go through this process and make sure that everything is above board.
It’s easy enough these days to find out if a lender has been accredited by checking on their website or searching for them on one of the major finance websites. Unregulated lenders won’t be listed, but reputable ones should be there so you can check in advance without any issues.
Look for accreditations like the Online Lenders Alliance, State Licensed Direct Lenders, and BBB Accredited Business certifications.
These are just some of the common signs of a responsible lender. If you keep these points in mind and follow them up with a bit of research online, you should be able to find a loan that is right for your needs. And even if it feels like everyone wants something from you before they help, by following this list you can avoid getting involved with an irresponsible business and the associated stress.
The key things to remember when taking out a loan are:
- Never borrow more than you can afford
- Never rush into a decision about a loan
- Always read and understand the loan agreement in full before signing
- Always check reviews and accreditations of the lender
- Always make sure that they offer good customer service
Make sure that you compare loan options from a number of different companies too. Everybody will offer different interest rates and repayment terms, and it is important to find a financing option that works for your specific financial goals.
