A loan is an essential commodity in a person’s life. Not that debt is inevitable, but it is often necessary when you have some financial need to fulfill and you don’t have the entire amount of money needed in cash.
Nonetheless, not all loans are equal.
They vary depending on the lender you approach, the amount you need, and the purpose you need the loan for, among other things. Mistakes made when hunting for a loan can be costly, or even financially suicidal, becoming debt-free can sound like a myth.
Thankfully, below are a few tips on how to shop wisely for loan products.
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1. Loan Type
When approaching the lending market, you should know that there are many different types of loans. Familiarizing yourself with the different types available is key to acquiring a suitable loan for your needs. The most common ones will range from personal loans to car loans, home loans, cash advances.
Lawsuit loans are also increasingly gaining popularity these days. As the name suggests, these are loans given to a plaintiff to cover their medical expenses or financial obligations, say after suffering an injury. As vividly outlined by the folks at Provident Legal Funding, these loans can cover different types of injury claims. Some of these claims may include injuries from:
- Auto accidents
- Medical malpractice
- Police brutality
- FELA
- Premises liability
- Among others
What’s more, these loans are specifically tailored to suit your financial needs, often depending on the value of your case. The best part is that they have zero risks because you won’t pay a dime if you lose to the other party.
The bottom line here is that it is wise to consider your options carefully because one loan type may not satisfy what the other can. The terms, requirements, interest rates, and fees also vary from one loan type to the other!
2. Interest Rates
While doing so, the interest rate is among the most important factors to consider before picking your lender and signing the deal. Consequently, comparing the different interests from different lenders is pivotal. It helps you land on a loan product with more favorable terms and cheaper interest rates.
Now, interest rates for the same loan product, say a home loan, may vary from one lender to the other. Also, there are different types of interest on loans, and understanding their differences is crucial when seeking funding. Some of these include:
- Fixed interest
- Variable interest
- Simple interest
- Compound Interest
- Prime rate
- Discount rate
- Annual percentage rate
3. Down Payment
Especially when getting a home loan, sometimes you need to raise a percentage of the loan upfront. This is called the down payment, and it can have an impact on your rates, loan term, or monthly payments.
Oftentimes, it is also a show of commitment to the lender. The bigger your deposit; the better for you. A large down payment will substantially reduce the loan principal and reduce your interest and monthly pay in the long haul.
4. It Should Meet Your Needs
Loans come in different types of forms, sizes, and packaging. You are simply spoilt for choice. As earlier mentioned, they include business, students, personal, mortgage loans, and the like. Discerning the different types of loan options can help you decide which loan best suits your needs.
Start by asking yourself some pertinent questions, like how much money you need for that mortgage or business project. List down all your requirements and the total cost of things you need to finance with the loan.
Then, you can borrow according to your estimated figure. If the lender gives you a lesser figure than can meet your needs, you can look to other alternatives or opt for a flexible loan.
5. Monthly Payments
Before taking out a loan, you must also ensure you inquire about the amount you will need to pay every month. This is because if you trail behind in your repayments on a car loan, for instance, the car could be taken away by your lender.
Also, defaulted loan payments attract penalties, some of which could get you sunk in debt over time. You, therefore, need to ensure you can pay the monthly fee on time. The low monthly repayment can sometimes be enticing, but again it increases your overall cost substantially.
When taking a loan, ensure the monthly payment does not drain your wallet to zero balance. It should fit easily into your monthly budget.
6. Ability to Pay
Most of the loan products look appealing to the borrowers. This makes a majority run to acquire high loans, and the worst part of it is that some use it for pleasure. Before you even think about borrowing money, ask yourself whether you will be in a position to pay back the debt.
Taking a loan carelessly without having a payment plan can push you between a rock and a hard place. Before taking a loan, evaluate your ability to pay back the loan.
Can your salary accommodate the loan? If it cannot, look for other alternatives or borrow a smaller amount. This will keep you at bay with financial problems.
7. Total Amount Owed
A loan is not something you want to apply for enjoyment. Acquiring one blindly, without knowledge of the total figure to pay, can ruin your financial life. It could also impact your credit score negatively if you default on payments at some point down the line.
While shopping for a loan, ensure your lender gives you the exact final figure which you will be expected to pay. This is inclusive of the loan principal, the interests, penalty fees, and any other fees incorporated in your debt.
8. Loan Length (Term)
A longer loan term is not always the best. Why? It increases your loan payments in the long run. It’s wise to choose a loan with the shortest repayment period to reduce your total loan cost.
With the short-term loan, you will be required to pay huge sums each month, and this can be quite a headache, but it will be worthwhile since you pay low overall interest at the end of your repayment period.
9. Beware of Predator Lenders
In every market, there is always a hungry wolf waiting to pounce on any innocent borrowers. Some lenders are fraudulent. They usually give you some glittering artificial interest rates which appear low at first and then later include the fee in your final cost of the loan.
Ensure you thoroughly peruse the fine print for any hidden costs. Otherwise, your loan will turn out to be unbelievably crazier than you thought. Consider hiring an attorney if you are not sure about the terms. They will help you unearth any buried costs, penalties, fees, and charges.
A loan gives us purchasing power when our bank accounts cannot sustain our financial prospects or needs. Shopping around for a loan does not have to be a tall order. The above pointers should help you navigate through choosing the right loan to cater to your needs.
Start taking back control of your money by grabbing your copy of the Money Saving Starter Guide today.
Last Updated on 7th January 2022 by Emma
