Getting a loan may be just what you need to help yourself out of a financial bind. However, not all loans are going to be in your best interest. It is important to shop around before settling on the first loan that is willing to grant you your desired amount. This article is going to describe what to really look for when comparing loan terms.
Use a Free Loan Comparison Calculator
The easiest way to start comparing loan terms is to use one of the free loan comparison calculators that are available. There are different ones available for the different types of loans offered. Just find a credible one that allows you to compare the loan terms for your specific loan. Once there, you want to pay attention to the following things:
- Interest Rate – The interest rate is one of the main things that you need to check when you are considering taking out a loan. Usually, the better your credit is the lower your interest rate will be. If you have bad credit, you are still able to get a loan, but the interest rate may be in the three digits instead of the two-digit range. Additionally, if possible, check around with Credit Unions, they have a reputation for having the lowest interest rates available.
- Prepayment Penalties – When you have a loan, the interest rates are what allow the financial institution to make their profits. They calculate the interest so they can be guaranteed a specific amount in profits. However, when you pay off the loan quickly, you are keeping them from getting the maximum amount of money from you. Therefore, some companies charge prepayment penalties for consumers who prefer to pay their loan off early. We recommend that you ask your potential lender about their early repayment policies before signing for the loan, so you know exactly what to expect.
- Scams – The world is always changing each year, which means scams are getting more creative by the day. Before taking out a loan with a lender, do your research to make sure that they are a legit business. You can do so by visiting the Better Business Bureau and Federal Trade Commission. It is possible that not all lenders are going to be nationally known. However, when dealing with a lender in that category research them first before you regret it down the line.
Interest rates, prepayment penalties, and scams are the three main things that you need to be checking when considering taking out a loan. Loans can help you during your financial setback, but you have to be smart to avoid making an already bad situation worse. We recommend choosing a lender by getting a referral from someone you know. Don’t worry too much that the application will drop your credit score. Also, make sure that you have tried other options before resulting to a loan and make sure that you will be able to pay the money back on time. Keep in mind; loans are a short-term solution to money problems, not a long-term one.