Loan rates, or the interest or APR one pays on borrowed money, are often times hard to find. Lenders are proud to brag about “great rates!” or “best deal!” or even “better than our competitor!” but they are much more elusive when you try to get exact facts and figures about their loans.
The truth is that it is absolutely OK to advertise being “the best” but it is illegal to advertise false APR rates. This is why lenders try to stick with hyperbole and avoid discussing the actual numbers of their loans.
In other words, you can say “we have the lowest APR!” even if you don’t, but you cannot say “we offer 5% APR” unless it is factual.
So your job, as the potential borrower, is to cut through the misleading statements and find out the bottom line – how much is this loan going to cost me?
FUN FACT #1 – The loan WILL cost you something. Businesses don’t stay in business by giving money away. If someone lends you money, there will be fees or interest of some kind.
In a financial emergency, you don’t always have time to research. But if at all possible, you should absolutely do careful research before borrowing money from ANYONE! Find out the specifics of the loan:
- What are the rates?
- Are there associated fees?
- Is there an early payment penalty?
- Is the final payment a “balloon” payment?
A reputable lender should present to you in writing a complete payment schedule for your loan. This will outline each and every payment, and when it is due, for the life of the loan.
Get this information for multiple lenders so you can compare them, and determine which is the best deal for you.
FUN FACT #2 – Loan rates are an important part of any lender’s business model. If the loan rates are not posted, or if the lender makes them very hard to find, this should be a red flag.
Be wary of any lender who uses the word “variable.” This is a dangerous word!
When you agree to a loan, you will have to sign a contract. It may be a paper contract, or you may e-sign a digital contract. Both forms are equally valid and legal in our day and age.
Here’s the important thing – once you sign that contract is it BINDING for both parties. So if you sign a contract that contains the phrase “variable rates” it means the lender can change the APR or fees on you without notification.
What you need to do is read the contract and make sure the rates and fees are clearly listed. That way the lender cannot change any of the terms for your loan after the fact. They must adhere to the contract, or you can sue them.
FUN FACT #3 – Some companies will charge you extra for paying your loan off early! Read the fine print and make sure you don’t do business with a lender who tries to keep you in debt!
Common sense would lead you to believe the lender wants you to repay their money promptly. But that’s YOUR common sense.
The common sense of the lender is – “the longer they have the loan, the more interest they have to pay. “ So many lenders will do whatever it takes to extend the life of your loan, and will penalize you for trying to pay it off early.
Find a lender with no early payment penalty. A loan with an early payment option can end up saving you hundreds or thousands of dollars over the life of the loan! Money that the lender wants for their pocket, but is much better off staying in yours.