How to Compare Loans

In the not so distant past, you wanted to take out a loan and you did not have much choice. Most of the time, to obtain money, you had to rely on a really good credit score and the generosity of the servicing credit company official. However, all this has drastically changed in recent years. Nowadays, the variety of loans is immense and almost anyone is allowed to borrow. The burden of choice lies squarely on the shoulders of the consumer, and proper, extensive research is mandatory if one wants to secure good credit conditions. Here are a few things to consider when you research and compare loans.

1. Before you even begin to compare loans, browsing through the myriads of options available, you must find out what your credit score is (it is the credit score that determines to a large extent what loans you are eligible for). This you can do immediately at the website of the Annual Credit Report or other similar organizations. You may be charged a small fee (not more than several dollars); however, this will be money well spent. You will know what types of loans you are likely to qualify for, as credit providers typically specify if you need an excellent, good, or poor credit history to obtain a particular product.

2. When you compare loans, check the interest rates. There are a countless number of institutions offering loans and, obviously, you can’t research all of them. For this reason, it is recommended that you use the comparison tools available online, which will allow you to juxtapose loans from all over the country.

3. Verify what fees apply to the loan. Many lenders will claim to be offering the lowest interest rate around. However, such claims often come with a catch. You may be asked, for example, to pay a fee, e.g. purchase ‘down’ points, in order to obtain the advertised low rate. Or the offered rate may be only introductory and subject to replacement with a much heftier one after the first year or so.

4. Check if there are any penalties involved and how much they may cost you. Some institutions will charge you a penalty of several hundred dollars if you refinance or repay your loan in total earlier than the end date stipulated in the contract. Penalties are usually smuggled in the fine print of loan documents. So, you compare loans, together with the terms that apply, making sure you read the fine print with particular care.

5. Call the lenders and ask for a Truth in Lending Statement. This is a document which provides comprehensive overview of the loan – its amount, conditions and rates. What is most important, it also shows the loan’s Annual Percentage Rate, i.e. the total cost of the loan (interest + servicing fees) you will pay for a period of one year. Naturally, when you are comparing loans, you will want to secure a loan with the lowest APR possible.

If a company attempts to avoid providing a Truth in Lending Statement, don’t take ‘no’ for an answer. The law requires that every lender obliges your request. When you receive it, make sure you preserve the Statement to check against the actual rate and fees which you will be charged. In this way, you will avoid any possible fraud on the part of the credit company.