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June 13, 2018
Unbiased Financial Information Provided by Financial Finesse
Shopping for a loan is just like shopping for anything else: you'll want to compare features and prices and look for sales. Although the process can be time consuming, the effort may very well save you big bucks over the long run.
Determine Which Loan Type Is Right
Before you start shopping for the best terms, you'll need to determine what kind of loan you need. The answer might be obvious: If you're buying a home, for instance, you'll be shopping for a mortgage. Sometimes, though, the choice isn't that clear-cut. If you're buying a car, for instance, you could take out an auto loan, but another option might be a home equity loan, which could provide you with significant tax savings.
Find the Lender with the Best Terms
You'll usually have several lender options, which might include credit unions, banks, finance companies, mortgage companies, peer-to-peer lenders and other kinds of specialty lenders. There may also be the possibility of dealer or owner financing. You'll want to check out loans from all these different types of lenders. In other words, don't just compare products from four different lenders; compare products from credit unions, banks, mortgage companies and any other lender that makes the type of loan you're looking for. Terms can vary widely between different types of institutions.
Do an Apples-to-Apples Comparison of Terms
When you compare loan offers, you have to look at several features and terms before you can be equipped to make a well-informed choice. What is the annual percentage rate (APR)? (This is what the loan will cost you, taking into account interest plus any other fees.) Is the interest rate fixed or variable? Are there prepayment penalties? It's best to compare loans of the same amount and term length so that you can easily distinguish the difference in cost.
Choose the Optimal Loan Term
An important thing to consider is the length of the loan. It's true that with a longer-term loan you might have lower monthly payments, but you may very well end up paying more in finance charges over the life of that loan than you would on a shorter-term loan. Generally speaking, the longer the term, the more you will pay in interest. The optimal loan term is as short as possible, but long enough that the monthly payments are manageable. Ask each lender to provide you with the figures for loans of varying length so that you can compare total costs for longer-term and shorter-term loans.
Shopping for a loan isn't as much fun as shopping for a sports car or big-screen TV, but it can be as rewarding in the long run.