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Think You Understand Loans? Here Are 5 Facts That Might Surprise You
12 September 2025 | Monetium Credit
There are many facts about loans that you might think you know, but actually don’t. There are other facts that you might’ve never even thought about. It’s essential to understand that the world of lending can be more complicated than it seems at first. Everyone knows the basics of borrowing. You borrow money and pay it back, plus an interest rate. But is this all there is to borrowing? Well, not really. This article will present to you 5 facts about loans that you probably didn’t know. About interest rates, the prepayment fee, credit score and loan approval. So, before signing for your next loan, read this article!
A Lower Interest Rate Is Always Better
A lot of people don’t really know what an interest rate is, and that’s why lots of misconceptions appear. One of the common misconceptions about it is that a lower interest rate is always the better choice. How so? Well, most people who think they know facts about loans think that a lower interest rate results in paying less money. But that’s not always true. In reality, the length of the paying period plays an even more important role. To make this clearer, we’re going to take a look at two situations. Let’s imagine that you are taking a $10,000 loan. In the first situation, the interest rate is 4%, but it’s for 10 years. In the second situation, the interest rate is 6%, but it’s for 5 years.
Without even making any calculations, you can tell that the fixed interest rate of 6% for 5 years will result in paying back less. It’s true that if you need a lower monthly payment, the first situation will offer you that. But it will also have you pay almost double in interest rate compared to the second situation. This makes it one of the facts about loans that you might’ve never thought about before. It’s important to know this because it could help you make the right decision when borrowing. Try to think of it in long-term terms too!
Prepayment Fee Is a Thing
Among the pile of loan facts that people don’t know, the prepayment fee is somewhere in the middle. This article by Investopedia gives a thorough explanation of what prepayment means. Even if the name itself might ring some bells, it’s important to ensure that you know what it means. So, prepayment is when you are paying your loan ahead of time. Now, this is when the problem intervenes. One thing that many people don’t know is that there is a prepayment penalty that you will have to pay. It’s the punishment for not paying the interest rate you promised, and getting rid of the loan earlier. Because people don’t know about it, they are often caught off guard, or think that they are being scammed.
More than Your Credit Score
Believe it or not, there is more to life than your credit score! Jokes aside, many people believe that their credit score is the only thing that matters when borrowing, but that is not true. One of the first things a lender is going to check is the DTI ratio. DTI stands for Debt-to-income, and this ratio shows how much debt you carry compared to your income. Let us give you an example of how to calculate it. Let’s say that you are making $6,000 before taxes, and paying $3,000 towards your car loan and credit cards. The equation would be: DTI ratio = (3,000 ÷ 6,000) x 100 = 0,5 x 100 = 50%. And as another piece of information, it’s very hard to get approved with a DTI ratio of 50%. This article by Bankrate talks more about what lenders are looking for before approving a loan.
Loans Can Boost Your Credit
People know about comparing credit loan rates between lenders before borrowing, but don’t know that a loan could potentially boost their credit score. Most people see a loan as a need, or even a burden. But a loan used strategically could repair or build your credit. The secret is to be responsible throughout the loan period. Every monthly installment should be paid on time, not a day late. Keeping older loans that have been paid off open can also help boost your credit. And a credit mix of both revolving credit and installment loans, can also help. Of course that not paying on time or having too many loans that you cannot afford will lower your credit.
Approval Doesn’t Always Mean ‘Yes’
You may not know that even if you get approved, you might not get the cash. This might sound silly, but it’s true. If you’ve been approved, and then you do something that negatively impacts your credit score, the lender might cancel the loan altogether, or change the terms of the loan. The lender might want to lower the amount they are lending to you or higher the interest rate. This is most common with mortgages, but it can happen with any type of loan. If you’ve been pre-approved or approved, avoid making large purchases or opening new credit accounts.
Another bonus fact that you might not be aware of is that unlicensed moneylenders are getting more and more popular, and many people are falling into their traps. You should only borrow from licensed lenders, no matter how tempting it might be to choose an unlicensed one. If you need information about loans, terms, interest rates and other similar things, you can always contact us. We also have an article that could be helpful for you, describing things you should know as a first-time borrower. Monetium Credit is a licensed moneylender that you can trust, no matter what type of loan you need.
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