Loan Advice - Shopping for a Loan

If you have to take a loan, it would help to know how to go about it. Before you start the process of getting a loan, let's see what you need to be clear about.

What is your borrowing limit? Based on your financial situation like income, payback ability, etc., a lender will decide on what he can lend you. Different borrowers use different benchmarks and may lend you more or less.

How much will the loan cost? Most of us think of interest rates when we take a loan. But a cost of other charges push up our borrowing costs. So you must look at all the costs before you decide on a loan. Most lenders will usually have a processing fee and may require you to pay the first installment immediately.Loan lenders may waive the processing fees if there are many others trying to get your account. And even though the lender is charging you interest on the entire amount of the loan, you only get to use part of the loan. Some lenders, specially those providing auto loans, may offer you deals like charging you interest on a lower amount than your actual loan amount. In effect this reduces the interest rate on your loan.

When do you pay back the loan? Most lenders will take post dated checks from you for the installments you have to pay on the loan. Never give checks without dates on them no matter what the lender's representative tells you. If the first installment has to be paid back immediately, the lender has found a way to hike up your interest charges since he is charging you on a larger personal loan amount and giving you use of the loan amount less the first installment. Some lenders allow you to prepay a loan any time. Some allow you to prepay only a certain percentage of your loan every year. Others charge prepayment penalties if you try to pay before the due date. Why would a lender mind if you are ready to return his money early? Well, lenders survive on the interest you pay them. They don't want you to pay back early since they lose out on the interest.