3 things to know before you apply for a loan
There’s nothing like being armed with knowledge to save yourself some money, so it stands to reason that it pays to educate yourself before financing any major purchase. Here are three things you should know before you apply for a loan:
1. Your credit rating, also known as a FICO® score.
As a rating of your credit worthiness, your FICO® score is a basic building block in your quest for a loan. It doesn’t matter whether you’re trying to buy a house, a car or a refrigerator – before they give you money, lenders want to feel comfortable that you’re going to pay it back. Your credit rating tells them your record of doing just that. If your credit rating is bruised, you might consider holding off on the purchase until you can improve your rating. That’s because higher FICO® scores can translate into lower interest rates and lower overall borrowing costs.
2. The cost of borrowing.
This includes knowing and understanding interest rates, fees and other charges that make the amount of money you’re paying back higher than the amount you borrowed. Knowing the prevailing interest rate can help you choose among lenders. So can comparing the annual percentage rate (APR), which expresses a loan’s interest costs and other fees as a yearly percentage. The APR gives you a look at the true cost of borrowing. Also make sure you also understand whether you are being offered a fixed-rate or an adjustable-rate loan and the long-term implications of both.
3. How much you can afford to borrow.
Many online loan calculators, such as the calculators in the LendingTree Smart Borrower Center, are available to help you figure out your monthly payments based on how much you borrow, the likely interest rate and the length of the loan. Check, too, how the total amount you will owe varies under different formulas. You don’t want to be stuck paying more than you have to. Carefully look at your monthly expenses to see how much you can pay. Don’t forget to figure in things like rent increases or unexpected expenses that could hit down the line.