What Should You Compare When Selecting Loans

You may spend days, weeks, or months picking the right house, car or college. Investing time into these big financial decisions makes sense since they can affect you for years. Yet, did you know that shopping around for a loan is a big part of that process? 

If you don’t take the time to look closely at the loan details before you sign, you could spend far more money than you need to. If you are looking at a big financial decision in the future, here’s what you should compare when selecting loans. 

MoneyLion offers a service to help you find personal loan offers based on the info you provide. You can get matched with offers for up to $50,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you. You can also use the loan funds to pay off other existing debts.

What to look for when comparing loans

Look closely at the terms, rates and lending requirements when comparing loans. Let’s find the details below:

Loan type

What you plan to buy affects the type of loan you take out. You’ll take out a mortgage if you plan to buy a house or a car loan to buy a vehicle. You can finance your college education with student loans. If you want to pay off some bills, take a vacation or just prefer some flexibility in spending, a personal loan may be the right fit. 

Eligibility requirements

Lenders have different requirements, so checking eligibility requirements is helpful when comparing loans. Some lenders require a minimum credit score to qualify. The loan may require continuous employment for a specified time, and you may need to prove your income. Sometimes, you may need to put down a deposit or have collateral to take out a loan. 

Loan term and length

The length of the loan plays a crucial role. Short-term loans usually have lower interest rates. You pay off the loan and get out of debt quicker with a short-term loan. However, your monthly payments will be higher since you have less time to pay back what you owe. A short-term personal loan may be a good option if you need a quick cash infusion that you can pay back in a few months.

When you borrow money over a longer period, your monthly payments are usually less since you have more time to repay what you borrowed. Since the lender extends credit over a longer term, your interest rate will typically be higher than a loan with a shorter term. You typically borrow money over a longer time when you take out a home mortgage, student loan or car loan. 

Interest rate

The interest you pay is your cost of borrowing money, so getting the lowest rate possible works in your favor. Loans may have fixed or variable interest rates. When you take a loan with a fixed interest rate, you’ll pay the same rate over the term. A variable interest rate may change over time. Sometimes, you may start with a low variable rate. Yet over time, the rate can rise considerably.

APR (annual percentage rate)

The loan’s annual percentage rate, or APR, includes the annual interest and loan fees you’ll pay over a year. The APR gives you a better sense of the cost of the loan. 

Fees and charges

Borrowing money often comes with added fees, such as

• Origination: Your lender charges loan origination fees to cover the cost of processing your loan. The lender may add origination fees to your total loan. Or they may be deducted from what you borrow, as with student loans.
• Prepayment penalty: You might incur a penalty to pay your loan off early.
• Late payment: If you don’t make your monthly payment by the due date, you could pay a past-due payment fee.
• Insufficient funds fee: If you make a loan payment without enough money in your bank account to cover it, you could pay an insufficient funds fee. 

Collateral

Lenders want assurance you will repay the money lent to you, so they may require collateral to secure your loan. Collateral is an asset you pledge to secure your loan. If you default on your loan, the lender can recover losses by seizing your collateral.

Your home serves as collateral when you take out a mortgage. Similarly, your vehicle is the collateral for a car loan.

If you use collateral to secure a loan, you may have a better chance of getting approved or landing a lower interest rate. Just keep in mind you could lose your collateral if you default. 

Monthly payment

For most loans, your monthly payment includes both interest and principal. However, if you take out a mortgage, a portion of your monthly payment may also cover real estate taxes and homeowner’s insurance. Auto loan payments usually cover only principal and interest as you will make your car insurance payments directly to your insurance company. 

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Total loan amount

Your loan amount includes how much you plan to borrow. Sometimes, it may include origination fees, closing costs and other charges. For example, if you borrow $200,000 to buy a house and incur a 1% loan origination fee, all other possible factors removed, your total loan amount would be $202,000. 

Repayment options

When evaluating loans to fit your financial situation, remember that some lenders allow flexibility when repaying what you owe. For example, you might be able to pay your loan off faster if the lender lets you add a little extra to your monthly payment. Or perhaps you land a new job and want to switch your due date to match when you get paid. 

Reviews and ratings

Choosing a lender you are comfortable working with is a critical step in the process. The experience of other borrowers provides valuable insight when you plan to take out a loan. Online reviews and ratings offer valuable insight into the experience other borrowers had. Reviews may reveal how easy it is to contact customer service if you have a question or how flexible the company is if you encounter financial problems later. 

Application process 

The last thing you want to deal with is a complicated application process when you need money quickly. When narrowing down lenders, be sure to review what steps you need to go through to borrow money. 

Choose the Best Loan for Your Financial Situation

Whether you plan to buy a home, finance your education, or just need a quick cash infusion, you can save money when you take the time to compare your lending options. Check out the interest rates, loan terms and fees to find the best deal for your situation. 

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