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    by Clark Kendall Personal Finance Expert

    If you want to buy a car or house, borrow for a business or consolidate debt, a good lender can help you achieve your financial goals. Use our guide to research the best loan company for you. We compare 40 lending companies on financial products, availability and reviews. Plus, learn how to better evaluate your options before signing any paperwork.

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    Types of loans

    The Truth in Lending Act (TILA) requires all lenders to provide transparent cost information.

    You can find loans to pay for almost anything, from houses and cars to weddings and health care bills.

    Home loans

    Home loans, or mortgages, are available to help people finance the purchase of a property. A mortgage loan can be issued by a bank, credit union or other lender. Mortgages are backed by private institutions or the government.

    Many private lenders work with the Federal Housing Administration to offer FHA mortgages. Other examples of government loans include VA loans and USDA loans. Private lenders can issue jumbo loans, which come in amounts higher than federal limits.

    For more, read about first-time homebuyer programs or compare our picks for the top lenders for first-time homebuyers.

    Personal Loans

    Personal loans can be secured or unsecured and come with fixed or variable rates. Some personal loan companies specialize in funding a particular life event, such as remodeling a home or getting married. Others offer programs designed to help pay off credit card debt.

    The steps to get a personal loan include completing a standard loan application process. However, eligibility requirements vary by lender.

    For example, payday and title loan companies will typically accept applicants with bad credit. The trade-off is that they charge higher rates (sometimes several-hundred percentage points) compared with more selective personal loan lenders.

    Payday loans are quick cash advances that you pay back after your next payday. It’s a type of unsecured loan that comes with a high interest rate. With a title loan, you put your car up as collateral. The title to your car is what secures the debt.

    Check out our picks for the top personal loan companies — all of them have APRs of 36% or lower. If you have bad credit and need cash quickly, consider these payday loan alternatives.

    Student loans

    Those who want to further their education can take out this type of loan to help cover the cost. Often, student loans are part of college planning for parents.

    The two types of student loans available are federal and private. You can use the money to fund undergraduate or graduate school.

    Debt consolidation loans

    Debt consolidation loans are used to help people manage their debt. Multiple loans are combined into one loan with a single monthly payment, usually with a lower interest rate.

    Like debt settlement, debt consolidation is a form of debt relief. There are pros and cons to this strategy. For more, read about when to consolidate.

    Business loans

    Those wishing to open a business or expand their current business can take out loans to finance their ventures. You can use a small business loan to pay for inventory, equipment, advertising and more.

    A business credit card is also an option for entrepreneurs to access credit and earn rewards on purchases.

    Car loans

    Auto loans are available for both new cars and used vehicles. You can get one through a bank, credit union or auto dealer.

    For more, read about how to buy a car online or how to buy a car with bad credit. We also have tips for first-time car buyers.

    Refinancing loans

    Refinancing is when you pay off an existing loan with a new one. You can refinance a home loan, car loan or student loan.

    Secured vs. unsecured loans

    A secured loan relies on an asset (such as a car, a home or a boat) that is used as collateral for the loan. An unsecured loan does not require collateral.

    The difference in having collateral is it affects your interest rate, loan limit and repayment term. Unsecured loans are more difficult to qualify for and have higher interest rates.

    Some personal loans are secured and require collateral, such as a title loan or a loan from a pawnshop. A payday loan, which is typically for a relatively low amount, is unsecured.

    Secured loansUnsecured loans
    • Mortgages and home equity loans
    • Car loans
    • Title loans
    • Some personal loans
    • Student loans
    • Credit cards
    • Payday loans
    • Most personal loans

    How to choose a loan company

    There are different types of lenders for different types of loans. Some companies specialize in mortgages or car loans, while others provide personal loans for debt consolidation and major expenses (paying for a wedding or fertility services, for example).

    The right loan company for you largely depends on what you want to accomplish. Figure out how much you want to borrow and check your credit score before you start comparing lenders on the following factors.

    When you take out a loan, chances are you’re thinking more about the cost of the item you’ll purchase with the loan money than about the cost of the loan itself. If you don’t consider the loan cost, that item could end up costing much more than you expect. To ensure that you get the best deal on a loan, make sure you talk to your loan company and understand all fees associated with borrowing.
    • Interest rate: The interest rate is the cost to borrow money, expressed as a percentage of the amount you borrow. Your credit score will influence your interest rate: If your score is higher, the lender will see you as less of a risk and give you a lower rate. If your loan doesn’t have a prepayment penalty, you’ll save money on interest by paying your loan off early.
    • APR: The annual percentage rate (APR) is often confused with the interest rate; however, the APR actually accounts for the total cost of the loan, including any additional fees, like an origination fee. When comparing loan offers, look at the APR to get the best price comparison.
    • Origination fee: The processing, or origination, fee is a one-time charge that covers the cost of processing a loan. This fee is typically included in the overall loan amount, so you aren’t required to pay it upfront.
    • Prepayment penalties: Some loan companies charge a fee if you pay off your loan early. These fees help the lender make up the money they lose in interest, but they also prevent people from getting out of debt early when they’re able to.
    • Pre-computed interest: Loans with a pre-computed interest rate use the original amount instead of the outstanding balance to determine the amount of interest a consumer will pay each billing cycle. If you pay the loan off early, you won’t save as much money on interest.
    • Late payment fees: Most lenders will charge a fee if you pay your bill late. Avoid that fee by setting up automatic payments from your bank account — or just put a reminder on your calendar to keep you on track.
    • Payment processing fees: Some lenders charge a fee to pay your bill in a certain way. For example, some lenders may charge a small fee if you pay your bill by phone or using a check instead of setting up automatic withdrawals. Make sure you understand these fees and choose a lender that allows you to make your payment in the way you want for free.
    When deciding on a lender, you should choose one that’s trustworthy and makes you feel comfortable. In general, if you’re working with an online loan company or new business, make sure to adequately research the company to avoid being scammed. Scams may be more likely with unsecured personal loans.
    • Hold loans vs. flip loans: Determine whether the lender you’re working with will hold the loan after you close or if they’ll flip, or sell, it to another party. While lenders that flip loans aren’t more or less trustworthy than those that don’t, you’ll have to accept that the company it sells your loan to will be trustworthy and offer good customer service.
    • Customer service: Consider how easy it is to get in touch with your lender now to determine if they'll be easy to reach later if you have any problems. Also consider how patient representatives are when answering your questions. They should be willing to address all your concerns and explain anything you’re confused about.
    • Registered: Lenders must be registered with the appropriate authority to do business in your state. You can find a list of state licensing authorities on the Nationwide Mortgage Licensing System website. Always check to make sure a mortgage lender is properly registered before signing anything — especially if it’s an online lender.
    When taking out a loan, you’ll have the choice to work with either a broker or a loan officer. There are advantages to working with each, so it is important to know the difference.
    • Loan officer: Loan officers work for the bank or lender, so getting a loan through them may be faster than working with a broker. These individuals are primarily accountable to their employer, so they may not always make recommendations that are best for you.
    • Loan broker: Brokers are a kind of middleman between those seeking loans and multiple lenders. If you’re worried that your credit may make it difficult to get a loan, consider working with a broker. They can help you decide which lender is most likely to approve you. These individuals may also be able to help you find a better interest rate because they’ll be comparing multiple lenders.
    There are a variety of other factors to consider when borrowing money. If at any point during the process you’re confused, make sure to discuss the matter with your lender.
    • Expertise: Look for a loan company that specializes in the type of loans you’re considering. If you’re working with a big bank, ask whether or not it has loan officers who specialize in certain types of loans.
    • Credit report: Everyone is entitled to one free report from each credit reporting company every year. If you’re considering taking out a loan, request one of your credit reports as far in advance as possible so you have time to check the report and request any corrections. Many credit card companies show you your credit score for free. If your credit is below average, consider a few ways to fix it or work with a credit repair company.
    • Down payment: If you’re taking out a home or auto loan, consider how much of a down payment you’re able to make. The larger your down payment is, the less money you’ll need to borrow. Saving a little longer to have a larger down payment could mean a significant decrease in interest later.

    Loan company FAQ

    A legitimate lender is easy to reach, has a solid reputation among reviewers and offers you complete loan terms before you sign anything. It will also check your credit history to ensure that you can pay back the loan.

    There are a few warning signs of scams. Avoid loan companies that:

    • Rush you into making a decision
    • Have numerous consumer complaints
    • Charge excessive interest rates and fees
    • Don’t go over the loan term in detail
    To get approved for a loan, you need to:
    • Apply with your lender in person, over the phone or online
    • Have a decent credit history
    • Have proof of a stable income
    • Have a reasonable debt-to-income ratio

    Some lenders offer instant approval, while others may take longer to issue an approval. It's possible your lender might require collateral if you don’t have good enough credit.

    Before issuing a loan, some lenders may want to see your bank statements to confirm your financial details, but this isn’t always the case. Ask your lender if it requires bank statements before it issues a loan.
    Loan companies make money on the interest and fees charged on loans. Part of their profit is the difference between the money charged to a borrower and the money the loan company owes to depositors and investors.
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page.
    1. Congressional Research Service, “An Overview of Consumer Finance and Policy Issues.” Accessed Sept. 23, 2021.
    2. Officer of the Comptroller of the Currency, “Truth in Lending.” Accessed Sept. 23, 2021.

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      Disclaimer

      Information in this guide is general in nature and is intended for informational purposes only; it is not legal, health, investment or tax advice. ConsumerAffairs.com makes no representation as to the accuracy of the information provided and assumes no liability for any damages or loss arising from its use.

      by Clark Kendall Personal Finance Expert

      Clark Kendall has over 30 years of domestic and international investment and wealth management experience, focused on serving Middle-Class Millionaires. He is a Chartered Financial Analyst (CFA), Accredited Estate Planner (AEP) and Certified Financial Planner (CFP). He is the president and CEO of Kendall Capital in Washington, D.C., and a member of the Washington Society of Chartered Financial Analysts.

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