Shopping for a loan

Find the best loan for your money.

Buying a new car? Purchasing a new appliance such as refrigerator or stove? Making a purchase such as a new car or appliance for your home often requires borrowing money from a lender such as a bank or credit union. Not only should you shop to compare prices and features of the new car or appliance, but shopping for the best lender to finance the purchase is also important.

The interest rate on the loan is probably the first thing that comes to mind when shopping for a lender. The lower the interest rate, the less total interest you will pay over the repayment period. Interest rates can vary greatly depending on the type of financing you are looking at and the lender. Your personal credit score will be a determining factor in the interest rate offered. Those with a higher credit score will almost always be offered a lower interest rate on a loan. Other considerations in the interest rate you are offered include other lines of credit you currently hold and how much you owe on them. Collateral for the loan is usually part of the deal such as a lien on the title of a new car.

Michigan State University Extension recommends to find out exactly what the lending institution is charging you for making the loan in addition to the interest you will pay on a monthly basis. Fees charged may include an underwriting fee or other fee for initiating the loan. Ask ahead of time so you are not surprised by unexpected costs when it comes time to sign the loan papers.

Other factors that may be a deciding factor in what lender you will choose include:

  • Perks, such as the ability to make payments electronically or having the payment automatically made from your checking or savings account each month. Interest rebates, disability insurance or life insurance on the loan and other incentives may be important to you also.
  • Physical location of the lender may be important to you if you will be paying the loan payment in person each month. Or if the lender is the same financial institution where you hold other accounts such as checking or savings accounts.
  • Past experiences with the lender such as previous loans you may have had and paid off.
  • Experiences with the lender of others that you trust such as friends or family members.

Making a big purchase for a car or home appliance usually involves shopping around to find the best value for your money. Shopping for the financing is just as important to find the right lender to finance the purchase!

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