3 Key Things to Look for When Comparing Loans
July 14th, 2015 by Lette Berhe
The world of loans may seem intimidating at first glance, but by educating yourself it becomes a lot easier to manage. By using our Loan Comparison Tool your loan search will be narrowed down to provide you with lenders that work with your citizenship status and your school. Although, we make the process of finding a loan simpler, when it comes to comparing loans what is it that you should look at? Below are 3 key things to look for when comparing loans.
1. Low APR
APR stands for annual percentage rate; although represented as a percentage it should not be confused with your loan’s interest rate. The APR is usually higher than the fixed or variable interest amount that the loan offers you because in addition to the interest rate it takes into account additional fees (origination, disbursement, application), length of the deferment period, and how interest capitalizes. Often times lenders will provide you with an attractive interest rate, but not mention what fees may be found in the fine print. The usage of the APR system was required by the government to protect individuals from bad loan practices from banks. Your loan is a long term investment, so using the APR is a better way to quantify the real costs of loans and a lower percentage means the less you´ll be paying in the long run.
2. No Repayment Penalty
As mentioned above, loans may often have very specific terms that can only be found in the fine print which many people don´t take the time to read. One thing to look for is whether or not your loan terms have a repayment penalty. Although most educational loans, public and private, do not charge prepayment penalties, they do exist. When choosing your loan part of the process is deciding on a repayment plan, where you choose a loan term to pay off your debt. Repayment loan terms vary but can range from 10 to 30 years. Let´s say that you signed to repay your loan in 10 years times. If your lender has an enforced repayment penalty, this means that you would be penalized for paying off your debt before those 10 years are up. By paying off your loan earlier, the lender is losing money they could have gained in interest rates. Repayment penalties within student loans may not be the common practice, but it is always better to be safe than sorry.
3. Hidden Fees
By comparing the APR of different loans and seeing the difference between the interest rate and the APR percentage you can determine if the loan may have some hidden fees. Common fees that are in the fine print may include origination fees (fees for taking out a loan), loan application fees, or disbursement fees (fees charged when you have received your loan). Not being aware of the extra fees that you could be paying, can cause your loan to be a lot more expensive than desired.
Using the above criteria can help you easily weed out loans that are not best suited for you. But the key is to take the time to read the fine print and ask questions!
Interested in more great loan tips? Don´t hesitate to check out our International Loan Advice section!