Getting a loan is something nearly everyone will have to do at one time or another in their lives. People borrow money for a wide variety of different things. Some need it to purchase a home, some to cover unexpected expenses and some to get their education. In total, Americans have over $10 trillion worth of consumer debt, with tens of millions of people borrowing money yearly. In fact, the stats show that over 80 million people in the USA alone borrow money in a given year.
However, when borrowing money, there are a lot of choices you need to make before you sign on the dotted line. You want to ensure you get the right kind of loan, that is affordable enough for you to pay back. It makes sense to take time to consider multiple different lenders and loan types. But how should you compare one loan to another?
With that in mind, let’s look at a few tips and things to compare one loan to the next, to ensure you make educated choices when borrowing money the next time you need to.
Consider Interest Rates
Of course, when comparing loans it is logical to start with interest rates. The higher the interest rate of your loan, the more expensive the loan will cost you as a whole. Getting a smaller interest rate will save you money, but isn’t always easy to get. If you want a better chance at a cheaper interest rate, consider putting up some kind of collateral.
For example, getting a car title loan will allow you to secure a loan with a more affordable interest rate. Sure, something like this can have you wondering “can you sell a car with a title loan on it?” or “is this risky?”, but there is no doubting it can get you a cheaper rate.
Look at Term Length
However, the interest rate of a loan isn’t the only thing to consider. Another thing you should look at is term length. Some loans will have a term length of only a few months, while some (most notably a mortgage) can be decades. Generally, the shorter the loan term, the better for you. One thing to make note of here, however, is that the shorter your loan, the larger your payments and/or interest rates can be.
While this might sound bad, that’s not always the case. Sometimes, paying a larger interest rate or payment for a smaller amount of time makes sense instead of having a small interest rate attached to a much longer term. There is a good chance it could actually save you some money in the process. It all comes down to personal preference, and what works best for your unique financial situation and life.
Don’t Forget About the Lender Itself
Lastly, you need to consider the lender itself. Not all lenders are created equally, and working with some will be a lot worse than working with others. You need to find a lender that is not only affordable, but also one that is experienced and has a good reputation. A simple Google search and a bit of research should be able to help you.
Also, pay attention to the extra fees or terms each lender may have. Some lenders might have additional fees you are responsible for, while others will not. Read the small print and be sure to ask a lot of questions of any lender before you agree to work with one.
In conclusion, we hope that this article has been able to help you learn how to accurately compare one loan to another.
Disclaimer: This content does not necessarily represent the views of IWB.