When it comes to loans, there’s plenty of options available, but only a few will even qualify to give you what you’re looking for, with the best terms possible. There’s plenty of risk involved; after all, you’ll be obligating yourself to paying back a considerable amount of money, with some interest added.
With that kind of pressure, it’s absolutely crucial that you get it right the first time, and find a lender that works well for you. But how do you find that lender? What are the things to look for, and which are the most important? Are the numbers the only thing you should worry about? There’s plenty to consider.
In the following, we’ll look at some of the different factors you need to consider, before you decide to finalize your choice for a lender.
Right off the bat, you should determine what the approval criteria for a lender is. If you put in all this effort, and they won’t even work with you, all you’ve achieved is wasting your time.
Approval criteria varies greatly amongst lenders, but in general it will be based on three things:
Your Payment History
Lenders will take a look at your payment history, to determine if you’ve been responsible with your financial obligations, or have accrued frequent late or missed payments.
Your Credit Score
Your credit score will be used as a reference to determine how good you are with managing credit. The higher your score, the more likely it is that a lender will work with you.
Your Debt to Income Ratio (DTI)
Your DTI is a measure of how much money you make, versus how much you’re already obligated to spend. In general, anyone with a DTI of 43% or higher will find that most lenders will not even consider them.
None of these criteria will instantly disqualify you from a loan; even if you’ve missed some payments, or your credit score is particularly poor, there are lenders who specialize in loans just for you. You just need to verify that it won’t be an issue with the lender.
When you start shopping for a loan, you probably already have a specific purpose, and a specific amount, in mind for your loan. The next rational factor, then, should be determining if your chosen lender will extend to you a loan in the amount you want to receive.
Now in truth, this will vary widely not only amongst lenders, but even with a single lending agency. Your credit score and DTI play a huge factor in determining whether or not you’ll get the approval for the amount of money you want, so you need to be realistic about your own circumstances. However, if both your score is high, and your DTI is low, and the lender won’t agree to the amount you’re requesting, then you need to go somewhere else.
This is often the one factor that will have you running from a lender at top speed. Even if you’ve met their criteria, and they’re prepared to offer you the amount that you’re requesting, if the interest rate is so high that you can’t, or simply don’t want to, afford it, then you’ll need to keep looking.
Bear in mind: your credit score, once again, plays a big part in this particular factor. Generally, the better your score, the more you can expect to receive a competitive interest rate, although this is certainly not a sure thing.
Loan Life Cycle
If everything is good up to this point, but the lender tells you that you have to pay back the loan within the year, and you can’t, then the deal is over before it begins. Depending on how much you’re borrowing, and your DTI, you need to pay special attention to the total amount of time the lender will allow you to pay back the loan.
Normally, this isn’t a major concern, since most lenders will work with you to spread a loan out over a fairly long period of time, especially if it’s a larger loan. However, you need to be aware of it, and determine that the loan will be spread out enough that you can comfortably afford your monthly payments.
Put yourself in this scenario: you saw an advertisement for a trip to Hawaii at a special discounted rate, that will only last to the end of next month. You don’t have enough in your bank account to afford it right now, but with a loan, you can easily afford the trip, and pay back your loan comfortably. So you pursue your loan, get approved, and then just wait for the money to hit your account. But then, the expiration date for the deal ends, and your money is nowhere to be found.
That’s an extreme example, but it does illustrate the point: depending on what you need a loan for, and how quickly you need the funds, the wait times for your lender to process your loan, and get you the money, can play a major role in whether or not you want to use that particular lender. In most cases, this won’t become a major issue, but if your loan is meant to pay off another debt that’s coming due, or to secure a mortgage for a house before someone else finalizes an offer, time is of the essence, and you want a lender that can keep up with you.
A lender may have the best interest rates around, with the highest loan limits, and can get you your money very quickly, but if their customer service is shoddy, it can be a truly grueling experience. How many times in your life have you called a business with a problem or question, only to be put on hold for extensive periods; or, have you ever called a business with a concern about their product or service, only to be told that their policies don’t make them accountable for your dilemma, and they hang up on you.
Customer service is crucial when you’re considering whether or not to work with a particular lender. You’re going to potentially owe them a lot of money if you choose to work with them, so you want someone that you can actually reach on the phone, or who responds to your emails, understands your concerns, and does their best to address them, even if they can’t give you the answer you’re looking for.