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Shopping for the best loan deal

[Nov 27, 2010.]

 

Shop around and compare loans to get the best deal. That sounds like an obvious statement that you may have heard many times. But have you really taken that advice to heart, or are you desperate to get a loan and willing to accept any terms just to get cash in your pocket? Here are five things to consider when shopping for a personal loan.

  1. Interest rates always matter. Even if you have so-so credit and know that you won't qualify for the best rates it's important to decide if the interest rate you are being offered is worth it. Just because you think you can handle high interest payments doesn't mean you should get locked into them. If possible, hold off on applying for a personal loan until your credit has improved.
  2. Fees and penalties matter too. For instance, there may be a fee to set up the loan or a penalty for making a late payment -- or paying early. Some lenders charge fees for paying off a personal loan balance ahead of schedule. It's important to get all the information about fees before signing up for a loan.
  3. Beware loans with no credit check. No credit check loans always cost more than those that require a review of your credit report. No credit check loans include payday loans, which charge interest rates that can have an annual percentage rate (APR) as high as 300 percent. Think long and hard before getting a fast loan from a payday lender.
  4. Are you trying to pay off debt? Loans for consolidating your bills can be be helpful when you are trying to improve your credit score and get out of debt. However, debt loans are not a good idea if you don't have a plan to stop overspending. A debt consolidation loan should be part of a bigger plan to improve your finances, which should include budgeting and saving.
  5. Some loans require collateral. This means you are agreeing to hand over some type of personal property if you end up defaulting on a loan. Some items that are used as collateral for loans include homes, cars, boats and jewelry.

All loans should have a contract

Even if you borrow money from a friend or relative it's important to get the terms and conditions clearly understood before any cash changes hands. Use a written contract so that there are no misunderstandings about interest rates, collateral, number of months to repay, or any other terms.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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