When selecting a loan, keep the following tips in mind:
- Choose the right kind of loan: There are a variety of different types of personal loans: from unsecured loans such as payday loans to secured loans such as home equity loans. In general, you'll pay less interest on a secured loan. The lower rate of a secured loan does come at a cost, however. Should you default on a secured loan, you'll forfeit your collateral. Not repaying your loan is bad enough, and will result in a hit to your credit score, but not repaying a secured loan will cost you even more, in the form of losing your property.
- Research your lender: A good lender can offer advice and qualify you for the right product, making sure it fits in with the rest of your financial plan. So it's worthwhile to get to know them before you take out a loan. Asking friends, family and trusted acquaintances for referrals or opinions is always a good idea. And the internet is also your friend. The Consumer Finance Protection Bureau, for example, is a tremendously helpful resource for researching lenders.
- Read the fine print: Make sure to read and understand the terms of your loan. If you don't, you could be in for a nasty surprise! Check especially for fees that may make your loan more expensive than might be otherwise obvious. Just because one loan has a lower interest rate doesn't mean it will be the cheapest. Also be sure to take into account all of a loan's relevant fees for a fair comparison.
- Don't bite off more than you can chew: Make sure that you can actually afford to repay your loan. Some predatory lenders may try to get you to borrow more than you can need, so they can gouge you with fees and interest. Try not to fall into that trap! (If you've done your research on lenders, as we suggest, you can minimize the odds of this happening.)
- Shop around! Like anything else, it pays to comparison shop. Loans are no different. You're more likely to get a better deal if you get multiple quotes.
Rates can change from the time when you first contact a lender to when you actually submit your application, so wait to see the final loan estimate paperwork before making your decision.
Also, don't be afraid to negotiate. If you prefer one lender but another lender is offering better terms, ask the first lender whether they can beat their competitor's quote. The worst that can happen is that they say no.
If you follow these tips, you're well on your way to getting the best deal on your loan.