3 Tips to Avoid Overpaying on a Small Business Loan
For many years the American dream has included white picket fences, happy families, and self-employment. The idea of being your own boss and pursuing your dream has been an elusive one for many Americans; yet there are still many entrepreneurs embarking on this journey who are unafraid of the temperamental market.
One thing is certain, embarking on the journey to small business ownership can be a harrying process. Securing financial funding through loans can be a tedious process; sometimes involving great risk. In your haste to escape the rat race and jump into self-employment, you may agree to loan terms that will have you overpaying over the life of the loan. Included here are a few tips to help you avoid overpayment on small business loans.
Know Your APR
Simply put, your APR is the total monetary amount in interest and fees you are paying on the loan each year; which, when calculated, can give you the total cost for the life of the loan. Knowing exactly how much money will be changing hands over the life of the loan can keep your books balanced and give your business firm financial footing.
Unfortunately, many small business lenders use misleading lending jargon that allows them to avoid full disclosure. Some lenders are even unscrupulous enough to quote you their “specialized rates,” which are not genuine interest rates, to allow you to believe you will pay less. If you cannot get a firm answer on the APR and understand your cost for the life of the loan, walk away from that lender.
Avoid Prepayment Penalties
If there is anything Americans have begun to learn in recent years, it is that being debt-free is highly underrated. Secure financial footing is dependent on low debt-to-income ratios and can help keep your life stress-free. It is understandable that, given the opportunity, you should pay off your loans sooner than later.
Unfortunately, some lenders don’t want to miss out on getting extra interest from the full term of your loan. They will hide a sneaky “prepayment penalty” into the clause of the loan, and nail you with this amount if you pay it off early, effectively negating the benefits of prepayment. Asking the lender how much you would owe if you paid off early can help you understand how much the prepayment penalty is and whether it is worth it.
Understand Your Needs
One of the biggest struggles for Americans is wanting more than they need. This is applicable in nearly every scenario, from eating to buying vehicles. Just because you qualify for a large loan does not mean that it is a wise decision. Be sure you have a clear understanding of the exact amount you need, before you shop for loans, so you can avoid being upsold by lenders.
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