Borrowers must meet certain criteria in terms of cash on hand, credit score, and collateral for this reason. Lenders are looking for assurances that you’ll be able to repay the loan. The terms of your loan agreement will describe exactly how the process works after you’ve been approved by a lender: how often you’ll make payments, how long you have to repay, how much interest you’ll pay, and what happens if you fail to repay. It’s helpful to evaluate all of these factors in advance so you’ll know what you’re getting into. They’ll tell you how much each loan costs.
How Finding a Lender Works
It’s almost always a good idea to shop around for a loan. Your best deal might not be with the first lender you talk to. You can’t necessarily count on the biggest advertisers or brand names to deliver the best deals. The only way to know you’re getting a good deal is to talk with several lenders and compare your options. The type of loan you need will determine how many choices you have. Some organizations don’t do student loans, but you’ll have plenty of options for other loans, such as personal loans. You’ll have to fill out a few loan applications to find the best deal. Ask somebody with professional experience about the type of loan in question if possible, such as a trusted real estate agent, if you need a home loan.
Types of Lenders
You have many options when it comes to finding the right lender for your needs.
Banks and Credit Unions
If the financial institution you work with doesn’t lend money, it’s a safe bet that it can suggest a reputable lender who does offer what you need. Banks and credit unions are a good choice for:
Personal loansAuto loansCredit cardsHome equity loans and lines of creditSmall business loansSome mortgages
Loans From Friends, Family, and Peer-to-Peer Loans
You might find that you have better luck getting approved, or you may pay less if you borrow from alternative sources. Sometimes family and friends can make good lenders, but borrowing from them can be risky. Peer-to-peer loans can help you skip the bank without putting relationships in jeopardy, but it’s only safe to borrow from online lenders if you use well-known, reputable sites. There are plenty of predatory lenders out there that are looking to take advantage of unsuspecting borrowers. You’ll need a lender that specializes in a particular type of lending for some loans.
Student Loan Lenders
Visit your financial aid office if you need to borrow for school. They’ll explain your options and help you start the process. It’s usually best to start with loans from the U.S. government. They come with certain benefits in terms of more lenient repayment terms and lower rates. You can borrow from private lenders if necessary.
Mortgage Lenders (Purchase and Refinancing)
You have several choices if you’re borrowing to buy a home, refinance, or take out home equity. A mortgage broker isn’t a lender, but they may have relationships with numerous lenders. They can help you shop, although it’s still a good idea to compare any mortgage broker to at least one alternative. Your bank or credit union may also have resources, whether they lend directly or employ mortgage brokers and loan officers. Construction loans come from specialized lenders, as well as banks and credit unions, if you’re buying land, building, or renovating.
Alternative Sources
These sources should take care of most loans you’ll ever need, but certain situations might lead you to other types of lenders. Your costs and risks generally increase as you stray off the beaten path, so you should only do so when it’s really necessary. Hard money lenders offer short-term financing for real estate investors, but most homeowners are better off with traditional mortgage lenders. Payday loans and title loans provide small amounts of short-term cash at a high cost. Furniture, appliance, and department stores may also offer to finance purchases, but you can often find better terms elsewhere.
Lender Requirements for Borrowers
Every lender will have its own set of criteria that it uses to evaluate whether you qualify for a loan and what terms it will offer you if you do. It will generally come down to factors such as your credit score, the amount of money you’re looking to borrow, how much you’re already borrowing on other loans, the length of the loan, and any assets you can offer as collateral.
