Are you in the market for a new loan? You may be surprised to learn that there are tons of credit products out there, and lenders are as diverse as the loan products they offer. Before you dive right in and sign on the dotted line, you’ll want to make sure you understand the terms and conditions of the loan being presented to you.
Here are some of the best questions to ask a lender before you commit to doing business with them:
- How much will this loan cost me?
This is one of the bests questions to ask a lender. Be sure to ask for a loan estimate, which should detail the amount of money you’ll be receiving and the associated interest rate. An amortization schedule will help you see how principle affects the cost of your loan over the length of your term.
- What types of terms can you offer me?
Depending on your own personal circumstance, a longer or shorter term may fit your needs best. Longer terms for example, often have lower interest rates, which means their monthly payments are usually less; however, since you’ll be paying interest over a longer period of time, you may ultimately end up paying more than you would with a shorter loan. Shorter loans often have higher monthly payments but you’ll be finished paying it off sooner, as long as you don’t default.
- Is there a prepayment penalty?
Many consumers don’t realize they could be penalized if they pay their loans off early. Not all loans have prepayment penalties, but this is definitely one of the questions to ask a lender up front, especially if you’re taking out a loan with the intention of paying it down before the term matures.
- What is your area of specialty?
Many lenders specialize in certain areas. If you’re in the market for a mortgage loan, a company that focuses on financing automobiles might not be the best fit. If you’re in search of a payday loan, a mortgage broker probably won’t be able to help you.
Bear in mind that companies with specialities often have diverse product offerings, so you don’t want to rule any business out based on this one question. But it should help you put your potential companies in order in your queue.
- Can my monthly payment ever change?
There’s a major difference between fixed-rate loans and variable-rate loans. Either could work well for you, depending on your individual loan need and financial situation, but it’s absolutely imperative that you include this as one of your questions to ask a lender. With a fixed-rate loan, the amount of principle and interest is factored across the entire term. This means your payment will be the same from month to month.
Alternatively, variable-rate loans fluctuate with the market. Your interest rate could increase or decrease at a moment’s notice, which will ultimately affect the amount of money you’re required to pay. Variable-rate loans are great for certain circumstances, but they’re not ideal in all cases. It’s imperative that you thoroughly understand what will be expected of you each month when your payments are due.
Know that you know the best questions to ask a lender, are you ready to apply for a loan? Before you do, see what you need to apply for a loan.