Before you take out a loan, you must ensure you’re getting the best deal possible. This is why using the loan comparison tool is advised, as it helps you get a clear picture of all the relevant costs associated with taking out a loan. With these insights in mind, you’ll be in a much better position to determine whether the loan is the right decision.
Before you start to compare here the best loan comparison tool, it’s best first to understand how to use one. Read on as this guide looks at the different loan terms you must understand before using the loan comparison tool to take out your next loan. Let’s get started.
- Loan Amount
This is the total sum of money you’ve borrowed from the lender, known as the principal, as well as the fees and interest you’ll be expected to pay back. The loan amount in certain instances doesn’t include inadequate funds fees or late fees. Before deciding the ideal loan amount to issue you, lenders consider different factors, including your credit score, credit history, employment history, collateral, down payment, as well as loan term, and type.
- Loan Term
This is the number of years over which the lender requires you to repay your loan and generally it can range between 12 to 84 months. Some lenders can issue you with a longer loan repayment period if you need an extension. However, extending the loan repayment period isn’t always advised because, albeit paying lower monthly payments, you end up paying a much higher interest rate in the long run.
- Interest Rate
The term interest rates refer to the percentage of the principal amount you’ve borrowed. When noted yearly, it’s referred to as the annual percentage rate (APR), which usually includes loan fees in addition to the interest rate. This gives you a better idea of the actual cost of your loan.
The interest rate charged for your loan depends on your credit score. This means you get better interest rates if you have a healthy credit score, as lenders see lending you money as not to be a big risk.
- Monthly Payment
This is the sum of money the lender requires you to pay them back until you clear your loan. Make sure your monthly payment is something you can comfortably pay without straining your budget. This way, you can continue settling your debt and clear your other bills.
Another thing to consider before taking out a loan from any lender is the fees they charge. This is crucial because this can quickly add up during the entire time you’ll be repaying the loan. Some of the common fees you should know about include;
- Prepayment penalty: These are fees charged by some lenders for clearing your loan sooner than the agreed-upon period. You should thus check if there’s such a penalty before paying off your loan before the scheduled period.
- Origination fee: It’s the fee charged by the lender when processing your loan and is usually 1% to 8% of your loan amount and is deducted before you receive the funds. For instance, if you request $1000 and the origination percentage is 1%, you’ll pay $10 and receive $990 in your bank account.
Late payment fee: It’s charged for delaying the repayment your loan.