Life Events

The interest rate on a loan is only part of what it costs. Preparing before you apply, and comparing offers carefully, can save you real money over the life of the loan.

Know why you are borrowing

Decide exactly how much you need and what the loan is for. Borrowing more than necessary raises your interest cost, while borrowing too little may leave you short. Different loans suit different purposes: mortgages for homes, auto loans for vehicles, installment loans for large purchases and lines of credit for flexible needs.

Check your credit first

Lenders base the rate they offer partly on your credit history. Review your credit reports well before you apply, correct errors and pay down revolving balances if you can. Avoid opening new accounts right before applying, since that can lower your score temporarily.

Gather your paperwork

Expect to provide proof of income such as pay stubs, tax returns and W-2 forms, plus bank statements and information about your debts. Self-employed borrowers are usually asked for business financial statements and more years of tax returns. Having organized records speeds approval and makes you look like a stronger candidate. If your records need cleaning up, our bookkeeping team can help.

Compare the total cost

Look at more than the rate. Compare:

• The annual percentage rate (APR), which includes certain fees
• Origination, application and closing fees
• The loan term, since a longer term lowers the payment but increases total interest
• Whether the rate is fixed or variable
• Prepayment penalties
• Late fees and what happens if you miss a payment

Lenders must disclose key terms in writing, so ask for the disclosures from each lender and put them side by side. The Consumer Financial Protection Bureau offers helpful guides on loan shopping.

Shop within a short window

Multiple credit inquiries for the same type of loan within a brief period are generally treated as a single inquiry by scoring models, so comparing lenders usually will not hurt your credit as much as you might fear. Check with each lender about how they handle it.

Consider collateral and cosigners

Secured loans, backed by an asset, usually carry lower rates but put that asset at risk. A cosigner may help you qualify, but they become legally responsible for the debt, so treat that request seriously.

Read before you sign

Make sure the final terms match what you were promised. Ask about anything you do not understand. Do not sign anything with blanks, and be cautious with lenders who pressure you or ask for fees up front.

If you are borrowing for a business or large purchase, contact us to talk through the tax and cash-flow impact first.