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From time to time you may need a large sum of money for a purchase, such as a home repair, or perhaps you are looking to consolidate credit card debt that is spread across several high-interest cards. Regardless of the reasons, there are several sources to apply for a loan, but how do you know which is the best one?
Shopping for a loan isn’t something you should do quickly — you’ll want to research the different companies offering loans and compare interest rates and fees before making a decision. There are also a few things you’ll want to do financially to ensure you improve your chances of getting the best loan.
The most important thing you can do when shopping for a loan is to make sure you have a good credit score. This can directly impact what type of interest rates you’ll have on your loan or what fees you’ll have to pay, so if you have time, build up your credit score before filling out the loan application. It’s also a good idea to see if you pre-qualify for a loan. This will give you a good idea of what might be preventing you from getting a good loan, such as little income or short work history, or a high debt-to-income ratio. It also gives you a good idea of what types of interest rates and fees you can expect base don your current credit score and other information.
When you apply for a loan, you will discover that there are essentially two types of loans — unsecured and secured. Unsecured loans are preferred because you don’t need to offer any collateral, with a secured loan, an asset is required and can be subsequently seized if you default on the loan.
With either loan, you pay a fixed amount each month, until the loan is paid off. The terms of the loan can vary depending on the lender. For example, the loan term limit can be 1 year, 3 years, or 5 years. Longer-term limits equate to smaller monthly payments.
Consider these factors when shopping for a loan, as well as the interest rate and fees. While banks and credit unions may offer favorable terms, you can sometimes find a better deal with online lenders. Just be certain you are dealing with a reputable lender — read customer reviews from an unbiased third-party site to get a good sense of each company.
Credit unions tend to be the best option for small loan amounts, and many of the bigger financial institutions do not offer unsecured loans.
Before filling out the loan application, be sure to ask questions and read the full details of any loan offer so that there are no surprises such as unexpected origination fees or penalties for prepayment.
Do your due diligence, and you’ll be much more successful in getting the best loan.
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