‘Money answers all things’ so says the good book. However, there are times when some issues need answers but money is not available to provide the answer. In times like these, a consumer loan comes in handy.
Many people have gotten into serious financial problems from taking out consumer loans. This is mainly because they did not do their due diligence before signing a loan agreement. In this article, we will give you tips on how to compare consumer loans so that you can get the best option for you.
At the end of this article, you will have the right information to make the best of consumer loans and not dig yourself deeper into financial holes.
What Is a Consumer Loan?
This is a type of loan given for a specific expenditure; it may be to buy a car or a house and may also be for personal expenses. These types of loans can be unsecured or secured.
Secured loans are those that require collateral. This means that the borrower presents an asset of equal or more value to the amount borrowed to the lender. This mitigates the risk for the lender in the event that the borrower defaults on repayment of the sum borrowed.
Say for example, a consumer takes out a loan for a car; the car stands as the collateral for the loan and can be repossessed in the event that the loan is not paid back as at when due.
An unsecured loan on the other hand is one that isn’t backed by any collateral. It is given strictly on the creditworthiness of the consumer. Due to the higher level of risk involved for the lender, most unsecured loans come with higher interest rates.
Tips on How to Effectively Compare Consumer Loans
We have stated that consumer loans come in handy in times of financial emergency but we also stated that it can dig one deeper into a financial mess. To avoid the latter, we will look at how to compare consumer loans.
The following are some effective ways of comparing consumer loans:-
- Employ the right methods.
- Look for the offers before making comparison.
- Ensure that you use the same parameters for comparison.
Now let’s go into the full details of the above.
Employ the Right Methods
When comparing the varied credit offers that are available, you need to use the right methods so that you can get the right results. There are steps that you need to follow and they include the following:-
- Get as many offers as possible
- Compare the terms and conditions of the loan
- Go ahead to choose the best offer; usually the one with the best interest rate and terms and conditions.
The first step in this process is to get as many offers as possible and there are many factors that can affect the offers that may be open to you. One of the greatest factors is your credit worthiness or rating. If you are looking to obtain an unsecured loan then your credit rating must be top- notch. Consumers with a score of 650 and above stand a better chance of approval than those with lower scores.
Look out for banks or financial institutions that will allow you to compare options without a hard inquiry. A hard inquiry always goes on a person’s credit record anytime you get pre- approved for a loan and too many of these are not good for your credit history. This is why it is necessary to opt for lenders who will allow you to get pre- approved without this inquiry.
The benefit of looking out for such institutions is that you can know the terms and conditions and interest rates without hurting your record. These institutions will only ask for your social security number and other relevant details so that a soft inquiry can be made. This type of inquiry doesn’t go on your record. It is only after you have accepted the offer that a hard inquiry will be made and this goes on record.
Ensure that you read the fine prints of any offer that you are considering. That is one of the major parameters for comparison; a clear understanding of the terms and conditions is very important.
Look for Offers before Making Comparisons
Bearing in mind the tips we have shared above, you need to get as many offers as possible before you start comparing. Like we said, look for those that will agree to a soft inquiry first; this will help protect your credit report as you go fishing.
Some financial experts advise that you get offers from a minimum of 3 lenders. We will add that you do so across various types of lenders. Check out banks, credit unions and online lending platforms. Many online lending platforms these days are usually cheaper than brick and mortar companies. This is mainly because they do not have as much overhead as the brick and mortar operators.
As you collate multiple offers, ensure that they are not too diverse. This brings us to our last tip for this article.
Ensure that You Use the Same Parameters for Comparison
Imagine that I want to compare which apple tree in a community produces fruit for the best jam? I will most definitely get fruits from apple trees in the community. It will be remiss of me to go to community A and get apples when I am comparing apples in community B. In the same vein, I wouldn’t use an orange from the same community because there would be no basis for comparison.
So ensure that you are using the same metrics for comparing which offer is the best for you. Look out for similar monthly payments, interest rates and loan terms. Do not just look at the monthly payment of one lender and feel that it is the best. Check out forbrukslån.no/sammenlign-forbrukslån/ for more information on the parameters to use for comparison.
Check out whether the term is fixed or variable. If the interest rate is variable, it may appear to be cheaper at the onset, but the truth is that you stand more risk because the rate may go up at a later date.
We have shared just a few basics about how to effectively compare consumer loans. Anyone who needs to take out a loan needs to do their due diligence. It is very dangerous for you to just pick any option because you are in a financial bind.
Ensure that you read through every detail about the loan, compare as many offers as possible and use the same parameters. Do not be careless about terms and technical jargons. Make sure you understand every lingo used in your offer letter. If possible, get a legal personnel to help you look at it.
One fail-safe option that you can fall on is to use a reputable loan agent. These professionals are fully equipped with the know-how to help you get consumer loans that will be worth it.