If you are taking out a personal loan, you want to make sure you get the best possible deal from your lender. After all, borrowing money always comes at a price, but the lower your total loan cost, the easier it will be to get out of debt.
Finding the right loan for you isn’t always as easy as it sounds, as there is a lot to think about when deciding which lender to borrow from. To make sure you choose the right loan for your situation, follow these five tips when comparing loan offers.
1. Get quotes from at least three lenders – and preferably more
There can be significant variations from lender to lender in terms of interest rates, repayment terms, fees, and the time required to fund loans. It is therefore important to get multiple quotes when shopping for a loan. Try to get quotes from at least three lenders, but preferably more if you can, so you don’t miss out on a better loan deal.
Choose different types of lenders as well, as online banks often have lower rates and easier qualifying terms than local banks and lenders because they have less overhead.
2. Look for lenders who allow you to compare loan offers without a serious credit investigation.
When you apply for financing, a serious credit check is sometimes written on your credit report. But too many serious inquiries can hurt your credit score – and the inquiries stay on your credit report for up to three years.
The good news is that many lenders – and many online loan comparison tools – let you get pre-approved for personal loans and know your rate and terms before a full investigation. is saved in your file. You provide your social security number and other basic information, the lender does a gentle investigation, and then you find out what interest rate you are entitled to. At this point, you can decide if you want to go ahead with the lender and request a serious investigation of your report.
By working with personal lenders who make it easy to compare with indirect inquiries, you can protect your credit score while finding the best financing deal.
3. Make sure you always compare apples to apples
When comparing loan offers from multiple lenders, make sure the type of terms (such as loan term and interest rates) are similar, and not just the monthly payment.
For example, if a lender offers lower monthly payments but a longer repayment schedule, you might owe more in total for that loan than for a loan that has higher monthly payments because of the additional interest you will be paying.
Another key thing to check is whether both lenders offer fixed rate loans (loans where the interest rate does not change). Variable rate loans generally have lower starting interest rates than fixed rate loans. The loan may seem like a better deal because of this lower rate.
However, you take more risk with a variable rate loan because the interest rate could increase when you pay it back. When the rate increases, the total cost of the loan increases, as do the monthly payments.
There are situations where an adjustable rate loan makes sense, especially if you plan to prepay the loan and can afford higher payments. But you want to compare loans with the same type of interest rate structure in order to get the best deal for the fixed rate or variable rate loan that you end up taking out.
4. Look at the total costs
Because you want to keep borrowing costs as low as possible, it makes sense to seek out the loan that offers the lowest total overall costs, including fees and interest rates.
When looking at rates, compare the annual percentage rate (APR) and not just the interest rate. The APR takes fees into account to show you what the total rate you will pay per year to borrow money.
Your lender should also be able to tell you the total interest you will pay over the life of the loan. This will be affected by your payment schedule as well as by how often the interest compounds.
Knowing the total interest you will pay can help you decide which loan will cost you the least in the end. And that’s a better bet than just focusing on the monthly payments or the annual interest rate, which can be misleading if one loan has a longer repayment term or has more fees than another. .
5. Read the fine print
You will also want to read the fine print of any loan you are considering to know about any fine details that could result in additional costs.
Some lenders impose prepayment penalties, for example. In this case, if you wanted to prepay your loan, you would end up paying more for that loan than for a comparable loan with no prepayment charges. And some variable rate lenders may adjust rates more often than others, increasing the risk that rates will rise frequently during the repayment term.
You want a complete understanding of your loan so that you know all the risks and potential costs that you might incur. Only then can you make an informed choice about which lender is the best.
It’s worth it to compare loans the right way
It is important to take the time to compare loan offers, as some lenders offer significantly better offers than others. You don’t want to pay more than you need to borrow, so be sure to follow these tips when shopping for your loan.