Some people hold the misconception that getting a loan via a third-party lender is somehow access to easy money. This is because the lending process is often easier and quicker than using banks. However, taking out a loan is always a big decision and it will always come with risks associated with it.

Always remember to read the fine print, don’t rush into the first loan you’re offered and keep your eyes open for the following risks:

• Origination fees - This is just the fancy term for any upfront fees charged by the lender. These fees are partly to cover the admin costs of setting up the loan but also constitute part of the lenders own income. These fees vary wildly between providers. Some may charge between 0.5% and 1% of the entire loan value, while others can be much higher. If you shop around you’ll be able to find lenders that don’t charge any origination fees at all. Any reputable lender will make these fees very clear at the outset, though.

• Understand your interest rate - Interest rates are another big variable. Two people could apply for the same loan amount, from the same company, and come out with two completely different interest rates. Lenders factor in individual circumstances for every loan. The higher the risk they think you are, the higher the interest you’ll pay. Always ask to see the total amount you’ll pay over the lifetime of the loan. This will give you a good idea of how much interest you’ll actually be paying. If it’s too high, shop around for a better rate.

• Early repayment penalties - The longer you take to pay off your loan, the more interest a lender makes on it. Lenders don’t want you paying off your loan early and many will have early repayment clauses written into the loan contract. You should always try to pay down your debts as quickly as possible, so check with your lender to see if they’ll penalize you for doing so. Again, any reputable lender should make these charges very clear from the outset.

• Payday loan risks - These types of third-party lenders will loan you money on the promise of a portion of your next paycheck. The interest rates are incredibly high and if you’re unable to make the payments you can get trapped in a cycle of debt. Only take this type of loan if you’re absolutely certain you’ll be able to make the repayments.

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