3 Things Lenders Won’t Tell You About Your Next Loan – The Motley Fool | CarTailz

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The most important part of getting a loan is finding one that works for you.


Important points

  • The better your credit score, the better your loan offers.
  • Shopping saves money.
  • Cleaning up a single error on a credit report can improve a borrower’s credit rating.

Whether you’re taking out a personal loan, buying a new car, or taking out a mortgage with a new lender, no two loans are ever the same. Regardless of your credit rating or how long you’ve spent building a credit history, interest rates and terms vary by lender. Because of federal law, lenders are now more transparent than they used to be, but there are still a few things that lenders like to keep under common hat. Here are three of them.

1. If you shopped around you probably could have gotten a better loan

No bank or lending institution will tell you what a mistake you made working with them. However, if they were honest, someone would say, “You know what?

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

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More: Pre-qualify for a personal loan without hurting your credit score

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

2. We are about to charge you some junk fees

When you consider how much a loan will cost to pay off, what goes into your calculation? For most of us, it’s capital and interest. However, unnecessary fees are costing many borrowers much more than expected.

For example, some personal loan lenders charge a processing fee. Typically, these fees range from 3% to 8%. Let’s say a lender approves your $20,000 loan application but charges a 5% processing fee. This means that $1,000 will be deducted from the maximum amount (5%) and $19,000 will be deposited into your bank account. However, instead of paying back $19,000, you have to pay back the entire $20,000 even though you never saw $1,000 of it.

Lenders will provide you with a disclosure form detailing all fees, but some do their best not to overstate how much those fees will cost you. Here are some of the other sneaky fees that lenders count on to make a profit:

  • Registration fee: The amount you pay to some lenders just to apply for a loan.
  • Prepayment Penalty: A fee that some lenders charge borrowers for paying off a loan before it is due.
  • Credit insurance: Credit insurance steps in to pay off a personal loan when certain things go wrong and you can’t make the payment. There are two important things to note here: First, a healthy emergency savings fund can eliminate the need for loan insurance. Second, you must sign a form that adds credit insurance to your loan. The lender cannot do this without your express consent.

Tip: The interest rate you are offered is far less important than the Annual Percentage Rate (APR). The annual percentage rate indicates how much a loan will really cost you. Ask a lender specifically what the loan’s APR is, and then ask to see each fee in writing.

3. Getting “that one thing” off your credit report will improve your credit score and give you access to lower-interest loans

Borrowers with the highest credit scores are not only spoiled for choice when it comes to lenders, but they tend to lend without lending fees, prepayment penalties, or other junk fees. And that’s where it gets tricky.

Let’s say you have an average credit score of around 700. That’s not high enough to get you access to the best credit, but it’s not bad either. What a lender doesn’t want to tell you is that there are steps you can take to improve your credit score.

One such step is to order a free copy of your credit report from all three major credit bureaus. You are entitled to a free copy once a year and can order it through a website like annualcreditreport.com. Once you have the reports in hand, go through them with a fine-tooth comb and look for possible errors. For example, a report that lists a loan as “active” when it is actually repaid is an error.

Report any errors to the relevant credit reporting agency. By law, credit bureaus have 45 days to either prove the report is accurate or remove the negative remark from your report.

Depending on what the bug was, removing a single bug can boost your credit score enough to put it in a higher tier. The better your credit score, the more lenders will want to work with you and the better your loan terms will be.

Tip: If you’re not being 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 hands.

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