Comparing loan offers can be a challenging and often frustrating task. If you need money quickly, you don’t want to sort through tons of fine print, trying to find out which offer is the best for your needs.
However, while this step can be time-consuming, it’s also important.
Understanding how to compare and contrast different loan terms is key to making sure that you’re getting the right financial help you require. While the first offer that comes your way might be the best one, this isn’t always the case.
Today, we’re sharing how to analyze each offer to get the best deal, one step at a time.
Before you begin the loan comparison process, it helps to know the key terms to look for as you assess each option. The words to highlight include:
These specifics will vary from one lender to the next. Think about which factors are the most important to you and prioritize from there.
For instance, if you want to pay your loan off as quickly as possible, then loan terms will be at the top of your list. On the other hand, if you have a strict budget and can only afford to pay a certain amount on your loan, then you’ll be more interested in fees and monthly payment amounts.
Let’s take a look at each of these factors in greater detail.
Often, lenders will charge extra fees for your loan, in addition to the actual loan itself. While these aren’t necessarily deal-breakers, they can add up, especially if you aren’t expecting them. Here are some of the most common ones to ask about.
These are the initial fee that your lender might charge to create and process your loan. In most cases, these fees equal around 1% to 8% of the total loan amount. Instead of asking borrowers to pay the origination fee out of pocket, most lenders just take them off the top of your funds.
For instance, if the loan is for $5,000 and the origination fee is 5%, then that would equal $250. Your lender would then give you $4,750 instead of the full amount.
Some lenders will penalize you for paying off your loan early. While getting rid of that debt can benefit you financially, prepayments aren’t as beneficial for your lender.
Do you expect to come into a lot of cash over the lifetime of your loan? Do you plan to pay it off ahead of schedule? If so, prepayment fees may apply so check with your lender before you proceed.
Your lender could charge you an extra fee if there aren’t enough funds in your checking account to cover the cost of your monthly payment. This could show up if you try to make a payment but the money isn’t there to fulfill the transaction.
Lenders usually apply late payment fees if you do not pay your monthly statement by the stated deadline. If you know that it will be harder to pay on time in some months, make sure your lender knows as soon as possible.
Loan rates are critical to understand as you start comparing offers. The two ones to know include:
The interest rate on your loan represents a percentage of the total amount that you’re borrowing. While it might seem like a small amount at first, it can add up and make a major difference in how much you ultimately pay on the loan.
As you read your loan terms, pay attention to the type of interest your lender applies. With a fixed rate loan, the interest rate will not change, no matter how market conditions shift. With a variable rate loan, you’ll usually pay a low, fixed rate for a certain amount of years, and then your rate is susceptible to change after that.
Remember that in addition to your interest rate, you may also have other loan fees to pay each month as well. The APR equals the base price of your interest rate plus those extra fees.
If interest and APR rates are highly important to you, make sure your credit is in the right spot before you apply. Lenders commonly give more competitive rates to borrowers with high credit scores and a history of responsible borrowing. If yours isn’t where you want it to be, you can boost it with these steps.
Personal loans can be short-term or long-term. A long-term loan can last for years, while most short-term offers start at around 12 months.
While you might be able to secure lower payments with a longer term, you’ll wind up spending more money over the lifetime of the loan. If you can manage slightly higher payments, look for repayment terms that allow you to pay off the loan more quickly.
Secured loans are backed by collateral, such as your home or your vehicle. If you can’t pay the loan back, the lender can seize and sell those assets to help cover the cost. Unsecured loans don’t require the use of collateral, but will often have less competitive rates and higher fees instead.
The monthly payment on your loan should be easy for you to manage. You should still be able to afford your basic living expenses while paying back the money.
Yet, your monthly payment calculation doesn’t tell the full story of your debt. Ask your lender to show you the total amount of the loan, which will include the loan principal plus all the interest and fees you’ll pay on the loan over time.
Choosing a lender is a big step, but it doesn’t have to be a challenging one. When you’re ready to apply for a loan, start with us. Once you tell us what you’re looking for, we’ll reach out to our partners and help you find a lender who meets your needs.
This way, you can compare loan terms to decide which one is the best for your situation. You already know all of these lenders can meet your request, so now it’s just time to narrow down the selection!
Ready to get started? Complete our online form today to connect.