If you’re thinking of taking out a loan, it can be easy to feel overwhelmed with the volume of information and the range of choices out there. Loans are issued by countless banks and financial institutions, it can be difficult to know which to go to in the face of so many options. We’ve put together five tips for comparing loan options. Check them out below.
What Type of Loan Do You Need?
The first thing that you need to do before you can start comparing loan options is to figure what type of loan it is you need. People take out loans for a number of reasons and they can be used for various things. Some may be more suited to particular uses and for particular individuals.
Personal loans are loans that are granted to individual borrowers. One of the reasons many people choose to take out a personal loan is to consolidate debt. Multiple debts spread over several lines of credit can be difficult to stay on top of, sometimes it can be more manageable to pay these off using a loan and then settle the debt with one monthly repayment. Personal loans can also be taken out to finance a big purchase such as a home renovation, a new car, or a holiday. Often, these are too expensive for the average person to pay for up front, so covering the cost with a loan allows them to pay back the purchase in affordable installments.
If your company is looking to borrow money, you will have to take out what is known as a business loan. Business loans are granted to companies and corporations rather than individuals and can come with unique rules and requirements. Often, business loans will require the applicant to put up collateral, usually in the form of equipment or property. If repayments are not made, the lender can then seize this collateral to cover the loan. Companies can take out business loans to cover operational costs or fund product development. Business loans can also be used to support companies looking to scale and expand into new territories.
Figuring out exactly what kind of loan it is you need is the first step you need to take. Once you have done this, you can begin comparing all the loan options that are available to you.
Where to Compare Loans
In days gone by, comparing loan options would require you to phone or even visit several different banks or financial institutions. Not only would this be incredibly time-consuming, but it would also be extremely inefficient and it would be difficult to stay on top of all the information you receive and make an informed decision moving forward.
Thankfully, modern technology means it’s now easier than ever to compare loan options. By visiting a platform like loan comparison service Prekredit, you will be able to access comprehensive lists of different loans and view details on each of them. This way, you can get an overview of all of the options available to you, which can help you choose the loan that is right for you and that meets your particular needs and requirements.
However, for those unfamiliar with financial terms and technicalities, it can be difficult to make sense of some of the terms you see. What details should you look for in a loan and how can they influence your decision? Let’s find out.
Interest Rates and APR
An interest rate is how much the lender will charge the borrower for the loan. The rate is represented as a percentage of the total amount borrowed, often referred to as the principal. It is absolutely vital that you pay attention to the interest rate of a loan before applying for it, this will let you know how much you can expect to repay over time. However, interest rates can change, influenced by both the lender itself and external economic conditions, so it’s important that you continually monitor the interest rate of your loan.
Interest rates on loans are commonly represented as an annual percentage rate (APR). This can give you an immediate idea of how much the lender is charging for the loan and can allow you to assess whether or not the loan will work for your budget.
Loan Term
When you take out a loan, typically there will be a written agreement between you and the lender. You will be required to pay back the principal plus interest within a specified period of time. The duration of a loan term can vary depending on the lender and the amount of money borrowed, but time frames are commonly between two to five years for personal loans.
It’s important that you assess loan terms carefully. Loans with longer terms may offer cheaper monthly repayment sums, which can seem like an attractive option at first glance. However, despite the lower monthly fee, the longer term can mean that you end up paying more over time when compared to a shorter term loan for the same amount. Shorter term loans can be cheaper in the long run, but you must ensure that you are capable of making the higher monthly repayments.
Loan Fees
Taking out loans from certain lenders may incur certain fees and charges. It’s vital that you make yourself aware of these to avoid encountering any costly surprises. Origination fees are charged by lenders to cover the cost of processing the loan, these can be anywhere between 1% and 8% of the total amount.
If you decide that you want to pay off your loan in full before the term has ended, some lenders may charge a fee for this as well. This is because they stand to make less money from the loan as you will no longer be paying interest rates.
Finally, many lenders will charge fees to borrowers who miss or make incomplete monthly payments. This is why it is so important to pay your bills on time and ensure you are always borrowing within your means.
Conclusion
Use the tips we’ve outlined in the guide above to find the best loan option for you.
