By Loans Canada
You want to take out a loan, but you’re not sure which one. If that’s the case, you are reading the right article. In this article we’ll look at factors to consider when choosing the right loan.
Why Do you Need the Funds?
This may seem obvious, but before you can choose a loan, you need to know what you plan to use the funds for. This is help you choose the type of loan that’s right for you.
It usually makes the most sense to match the loan type with the desired use of the funds. For example, if you need money to buy a car, it often makes more sense to take out a car loan rather than a general personal loan.
That’s because a car loan is tailored towards buying a vehicle. It’s set up with that in mind. Meanwhile, a personal loan could be for just about any purpose. As such, it may not make the most sense in this instance.
What is the Interest Rate?
Once you figure out the type of loan, next you want to turn your attention to the interest rate. When evaluating the different interest rates of each loan, you want to consider both the APR and monthly rate. The APR and monthly rate help reveal the true cost of borrowing.
The APR considers any compounding and lets you do a fair apple to apple comparison between different loans.
What is the Repayment Schedule Like?
The repayment schedule of a loan matters. Unlike a line of credit, with a loan the repayment schedule tends to be a lot less flexible. With lines of credit, you can often make interest only payments. With loans it usually isn’t the case. You’re typically required to make amortizing payments that include both principal and interest. This means that your payment with a loan will likely be higher.
If you’re looking for a more affordable payment, you want to find lenders with longer amortization periods. But that comes at a cost. A longer amortization period will mean paying more interest over the life of your loan.
You might consider a loan with a longer amortization period that lets you make extra payments. That can be the way to get the best of both worlds.
Are There Any Extra Fees?
Loans often come with extra fees. To fairly compare loan options, you want to know about any fees, so you can calculate the real cost of borrowing.
For example, with a mortgage, there may be an appraisal fee. An appraisal fee covers the cost of the lender evaluating the property for mortgage lender purposes. It’s usually you, the borrower’s responsibility, unless you can negotiate with lenders to cover it themselves.
What Do Customers Have to Say?
Lastly, you want to know what customers are saying. Interest rates and fees matter, but it’s not everything. Reputation matters as well.
If a lender has the lowest rates, but only slightly better interest rates, is it really worth it going with them? Probably not. At least by reading a lender’s reviews, you can decide for yourself.