Choosing a lender is one of the most important decisions that anyone shopping for a loan can make. When you borrow from a lender, it is more than just an exchange of numbers and money. You are entering into an agreement with someone to meet the conditions they have given you to get the money you need to do what you want.
There are many different lenders on the market, each with their own conditions, areas of expertise, and methods of interacting with their clients, also known as ‘borrowers.’ It can seem overwhelming with so many different lenders to choose from, but regardless of the type of loan you are seeking, there are common questions to ask and information you need to find the lender that will be the right fit for you.
In the following paragraphs, we’ll discuss different methods you can use to choose a lender, and some of the benefits and risks that each carries.
The first method to consider when you shop for a lender is analyzing their rates. Rates refer to the interest rates, and any additional costs, that you will have to pay in order to get a loan from that lender. Interest rates are the amount you will have to pay to the lender, in addition to the amount they allowed you to borrow that you will pay back. In essence, interest rates are the profit that a lender makes from agreeing to let you borrow money, and how lenders grow their business.
Typically, the interest rate you can expect to pay will be based on the lender’s minimum accepted interest, as well as your credit score. Better credit scores will usually allow you to receive a loan with lower interest rates, because you have demonstrated to the lender that you are a trustworthy and responsible individual, whom the lender can depend on to pay back their loans on time.
Other factors to consider about a lender’s rates are any fees associated with securing the loan, such as processing fees and consulting fees. If you have bad credit, or you’re severely constrained in financial options, judging a lender based on their rates may be the deciding factor for you, but be aware that you may encounter other headaches, that we’ll discuss later, if you only pay attention to rates.
Reputations in business, especially in the financial sector, carry a lot of weight. With the world more connected than ever before, and information becoming publicly available almost instantly, word gets around, and lenders that mistreat their customers will quickly become apparent. As a borrower, this is to your benefit, because you have numerous resources available to help you determine who want to work with to get a loan.
The easiest place to start is with the internet, using your preferred search engine, to find the lender you are considering. Make sure you research what types of loans a lender specializes in; a lender that focuses on mortgage loans will most likely not be as effective if you are seeking a personal loan to take a trip.
Use common sense when you read reviews, and pay attention to the trends of what people are saying. One bad review alongside nine good ones could be the result of a disgruntled borrower not qualifying for a loan they wanted, and shouldn’t necessarily discourage you from working with that lender. Conversely, if you consistently see key phrases such as “high interest rates,” “hidden fees,” “long approval times,” and “delays in getting my money” across multiple reviews, then you will most likely want to avoid working with that lender.
Reviews are a great method for learning as much as possible about a lender before you even contact them, but it is time-consuming to search reviews and it can be difficult to find unbiased, applicable information.
Ease of Process
Few things are more discouraging to a customer than working with a business and getting the impression that all they care about is getting your money, regardless of how abused or ignored you may feel. The process a lender employs is a critical factor that will determine whether or not they are right for you.
When investigating lenders about their process, you need to keep in mind what type of loan you want, your current credit and financial situation, how quickly you need the money, and how much time you’ll need to repay it. Check to see if that lender conducts an initial credit check before you’ve even agreed to work with them, as this can hurt your credit score and your chances of getting a better interest rate.
You should also understand exactly what will need to occur to receive a loan from a lender, and the conditions under which you’ll get your money. Aside from rates, these conditions can include how long it will take to be approved for your loan, how long it will take to receive your money, how long you will have to pay the loan back, and whether or not your information will be shared with outside parties.
While rate and costs are important, and are often what drives most borrowers to choose a particular lender, you need to do as much research as possible to ensure that your lender’s process will be as easy to understand and navigate as possible. Be aware that some lenders may have great processes and reliability, but will charge higher rates and fees to use their business because they consider their services to be of the highest quality.
We discussed earlier how reviews and reputation can have a huge impact on whether or not you decide to work with a particular lender. In that same train of thought, utilizing a trusted brand can potentially be a safe, sure way to get the loan that you need, with a good rate, as easily as possible.
If you think about it, these brands are referred to as trusted because, over time, they have built up a reputation of delivering on their promises, giving customers what they need, with a great process, and under conditions that allow both the borrower and the lender to benefit equally.
Trusted brands usually have years of experience in not only giving customers what they want, but answering any questions they have and determining the best course of action if the borrower is unsure of what they want. The risk of defaulting to a trusted brand, however, is that you potentially miss finding a lesser known lender who can offer you a loan at a better rate, easily and quickly.
If you’re unsure about what you’re looking for, don’t have a great deal of knowledge about financing and loans, or don’t have time to do extensive research, then going with a trusted brand may be the best option for you.
Explore All the Options
While there are a myriad of factors that go into deciding whether or not to work with a lender, understanding your situation and what you want to achieve is the first step in considering what lender to use. Once you are aware of your circumstance, you can use one or more of the methods we’ve discussed to help you find that lender.
While some of these options may be more important to you than others based on your unique situation, it’s important to consider all of them, and do as much research as you can, to help ensure you get a great loan that allows you to achieve your goals.