Most of the time, depending on your particular situation, there are several loan options available. When you start looking for a loan you might consider:
- Payday loans that are paid off all at one time
- Personal loans that are paid off with installments or payments
- Cash Advances from a credit card
- Home equity loans if you own a house
- Car title loans
These are just a few of the loan types available to you. Looking for the most affordable option can get complicated rather quickly and there are several points that should be considered before taking out any loan. By considering time limits, loan terms, and types of repayment options you can find the best deal; or the one that fits your situation best. Sometimes important factors are overlooked because you need some extra money and you need it fast. Here are some of the most important factors to consider when you are trying to decide which loan type is right for you.
What are the terms of the loan?
When looking at the different types of loans, compare the loan terms each one offers. No matter what type of lending facility you are using, they will have their terms written out so you can read them. Think about these perspectives:
- If possible, choose loans with the shortest terms available – it accumulates less interest over time
- If a short term loan has a super high interest rate, then consider taking a long-term loan instead
What is the Annual Percentage Rate (APR) or interest rate?
This may be the most important consideration you make when choosing the best loan. It’s not enough to simply look at the basic interest rate, you will need to look at the APR or annual percentage rate. The APR includes all different types of fees that may be associated with the loan. The basic interest rate is just the amount of interest charged, it’s a flat percentage like 15%. When you compare APRs, you get a more accurate cost of the loan in the long run. This is true for most loans, but if the loan has a variable rate the interest changes based on the market which makes it difficult to compare among loans Usually, comparing interest rates comes down to you being comfortable with the interest being charged and the payment plan necessary to pay it off over time.
Does your credit rating affect the interest rates?
Your credit score can dictate your interest rates on certain types of loans. Because they can differ, it’s important to check them out thoroughly before you take out a loan.
- Most unsecured loans like a payday loan will not have varied interest rates based on an individual’s credit score
- Most secured loans like you get from a bank will usually have higher interest rates for persons with lower credit ratings
What is a balloon payment?
There are some types of loans that have a shorter term and they are not paid off in monthly installments. This type of loan has a large balloon payment due at the end of the term. When you consider this type of loan, remember that you will have to have a large lump sum due at the end of the loan term or you may need to refinance. A payday loan works similarly in that you pay the loan in full in one single payment. On occasion you can reschedule the loan payment if you are unable to pay the balance in full as scheduled.
What is the total amount you owe?
The total amount you owe is going to be more than just the initial amount you borrowed. It will include the original amount you borrowed and any fees along with the interest the lending institution charges on loans of its type. The best thing to do is to choose a loan where you will owe less money over the entire duration of the loan. You also want to choose a loan with a payment plan that you can afford and easily manage without breaking your budget. Most lending agencies can break the total amount of the loan down for you so it’s easy to understand. It’s important that they show you several things:
- Total amount borrowed
- Any and all fees for the transaction
- Total amount of interest
When you add these up you will be able to see the total amount you will owe for the loan.
What type of payment plan does the loan have?
Don’t forget to take a look at the payment plan as different types of loans can have very different payment plans and options. A payday loan is usually a smaller amount of money that is paid back all in one payment on your next payday; an installment loan may be a larger amount of money but it is paid back in several payments made over a series of months. Some loans offer variable interest rates which can give you lower monthly payments than some of the other types of loans. But don’t look at just the payment plan, remember you are looking at the entire loan and not just payments. If you look at the lower monthly installment payments you might think it’s the best deal when the truth is that you’ll end up paying more in the long run. You need to look at the entire amount owed and how it is going to be paid back ultimately.
Choosing the Right Loan for You
That seems like a lot to look at when you just need some money to get buy, doesn’t it? But each piece to this puzzle adds up so it’s important to consider each one. Which is the most important factor to look at? Probably your ability to make the payment(s) on the loan. It’s likely your budget is already tight so make sure you can make the repayment schedule for the loan so you don’t get into deeper trouble. Whether it is a lump sum payment or installments spread out over a long period of time, it’s imperative that they can be paid as scheduled. Not paying them back can be detrimental to your credit score.