3 Things Lenders Won’t Tell You About Your Next Loan

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The most important part of getting a loan is finding the one that suits you.


the main points

  • The higher your credit score, the better your loan offers.
  • Shopping is about saving money.
  • Correcting a single mistake on a credit report can raise a borrower’s credit score.

Whether you’re taking out a personal loan, buying a new car, or signing a mortgage with a new lender, no two loans are alike. Regardless of your credit score or how long you’ve been building a credit history, rates and terms vary by lender. Due to federal law, lenders are now more transparent than they used to be, but there are still some things that lenders like to keep under their collective hats. Here there are three of them.

1. If you shop, you are likely to get a better loan

No bank or lending institution will tell you what you did wrong by working with them. If they’re honest, though, someone might say, “You know what? If you’ve taken the time to evaluate shopping and check with other lenders, you may have experienced a low interest rate.”

They’re also unlikely to admit, “We know our low interest rate gets people’s attention, but the truth is that by the time you add up all the fees we charge on the loan, the actual cost of borrowing money from us is ridiculous.”

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advice: Always shop for lenders. Even if the interest rate you find is only 1% lower than others, you can save thousands over the life of the loan.

2. We are about to charge you some unwanted fees

When you think about how much the loan will cost by the time it is paid in full, what goes into your calculations? For most of us, it is capital and interest. However, for many borrowers, the unnecessary fees cost them much more than they expected.

For example, some personal loan lenders charge an origination fee. Usually, this fee ranges from 3% to 8%. Let’s say a lender approves your loan application for $20,000 but charges a 5% set-up fee. This means that he takes $1,000 off the top (5%) and deposits $19,000 into your bank account. However, instead of having to pay back $19,000, you have to pay back the full $20,000, even though you’ve never seen $1,000 of it.

Lenders will provide you with a disclosure form outlining all fees, but some do their best not to overemphasize how much these fees cost. Here are some other fraudulent fees that lenders rely on to make a profit:

  • Form fee: The amount you pay to some lenders just to apply for a loan.
  • Prepayment fine: A fee that some lenders charge borrowers to pay the loan before it is due.
  • Insurance card: Credit insurance starts paying off a personal loan if something goes wrong and you can’t pay back. There are two important things to mention here: The first is that a health emergency provident fund can eliminate the need for credit insurance. Second, you must sign a credit insurance addition to your loan form. The lender cannot do this without your express permission.

advice: The interest rate you offer is much less important than the annual percentage rate (APR). The annual interest rate (APR) represents how much the loan will really cost you. Ask the lender specifically how much the APR is on the loan, then ask to see each fee in writing.

3. If you clear “that one thing” on your credit report, your credit score will increase, and you will have access to low-interest loans

Not only are borrowers with the highest credit scores a rubbish pick when it comes to lenders, but they tend to get loans without origination fees, prepayment penalties, or other unwanted fees. This is where things get difficult.

Let’s say you have an average credit score, somewhere around 700. It’s not high enough to give you access to the best loans, but it’s not terrible either. What the lender doesn’t want to tell you is that there are steps you can take to boost your credit score.

One such step is to request a free copy of your credit report from all three major credit reporting bureaus. You are eligible for a free copy once a year and you can order it through a site like Annualcreditreport.com. Once you have the reports on hand, review them with a fine-tooth comb for any potential errors. For example, a report that lists a loan as “active” when it has already been paid off is an error.

Objection to all errors with the respective credit reporting agency. By law, credit reporting agencies have 45 days to validate the report or remove the negative note from your report.

Depending on what the error is, removing one mistake can raise your credit score enough to push it into a higher range. The higher the range your credit score falls in, the more lenders will be willing to work with you, and the better the loan terms will be.

advice: If you aren’t offered the APR or loan terms you want, back off long enough to focus on improving your credit score if possible.

Lenders may not be quick to tell you how to save money, but now that you know, the ball is in your court.

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