Finally decided to take out a loan? Nice move. Nowadays, many lenders can provide you with the best financial products you need. You can still get a loan even with a bad credit score. However, it is not advisable to instantly sign for the loan. You need to compare the different options to choose the best one. Here, you will learn how to compare loan offers to find the best loan option for you.
- Check the Terms of the Loan
First, you need to know the terms of the loan the lender offers. There are various loan terms, as stated below:
Principal: This is the original amount of the loan, and it will be reduced every time you make payments.
Interest rate: It’s the cost you pay for borrowing money and is normally charged on the principal amount. The interest rate is calculated as a percentage of the total loan amount. It is based on the amount you are borrowing, the term of the loan, your credit score, etc.
APR: It’s the total cost of borrowing funds. It includes the interest rate and other fees depending on the type of loan.
Credit score: Most lenders use scores to determine the creditworthiness of the borrower or how likely they are to pay back the loan. With a higher score, you’ll be seen as a low-risk borrower. On the other, if your credit score is low, you are a risky borrower and the lender may not approve your loan.
Loan term: It is the amount of time you take to pay back the loan. The term of the loan is always stated in the loan agreement.
- The type of Loan
The type of loan for your needs will largely depend on your financial status. Suppose you want to go for the basic type of a personal loan having a monthly interest rate and regular payments made for a stated period. In that case, you can consider debt consolidation loans or installment loans. Besides, you can also choose a loan that grants you instant access to cash. In that case, you should opt for an instant personal loan online or a credit line.
You should also consider the type of loan that suits you. For instance;
Unsecured loans: With unsecured loans, you don’t need to provide collateral for the loan. Also, note that these types of loans have the highest rates of interest and other fees
Secured loans: This type of personal loan needs borrowers to provide collateral. Let’s say you need to borrow a car loan, your car will be used as collateral. If you fail to repay the loan as per the agreement, then the lender has the right to confiscate the provided collateral. These loans usually have lower interest rates.
- The Associated Fees
Before signing any loan, you have to check for any extra costs charged on the loan. This fee can add up to the amount of your loan. Some of the common fees to look out for include the following:
Origination fee: It’s an upfront cost a lender can charge to process your loan. Origination charges range from 1 percent to 8 percent of the total loan amount and are usually deducted from your funds before you receive them.
Let’s say you borrow Rs.4000 with a 2 percent origination cost, Rs.80 will go to the fee, and you will receive Rs.3920 in your bank account or cheque.
Prepayment penalty: Lenders also charge prepayment penalties when you repay the loan earlier than the agreed period. If you have more funds or you are planning to repay the loan ahead of the scheduled payment duration, you need to check if the prepayment fee applies before doing so.
Late payment charges: If you find it challenging to make your payments on time, you need to check if the lender charges fees for late payments. This is one of the most common fees most lenders charge. Before you sign for the loan, make sure you are fully aware of the cost incurred when you pay for the loan late.
- Qualification Requirements
Each lender has their own set of eligibility standards the borrower needs to meet to qualify for the loan. Some lenders will provide loans to those with super credit ratings, stable income, employed, etc, while others are more lenient on the requirements you need to meet. This means even if your income or score isn’t very high, you will still get a loan, but the amount can be small with a higher APR.
Before you begin the loan searching procedure, check your credit report and ensure everything shown is accurate and check for the credit score to know where you stand. This will help you easily identify lenders and loans that match your credit profile. Also, it lessens the chances of being rejected for the loan, which may delay the goals and add an unnecessary hard pull to your report, in turn lowering the credit score.
Having said that, you can still find a loan for low CIBIL score out there. Tread wisely to get the best loan suited for your prerequisites.