Saturday, 10 January 2009

Finding the Right Lender

By Mary Bush

Often when people think of applying for a loan, they consider only the terms of the loan, such as the interest rate that they will pay. In reality, one of the most important criteria that one should consider when applying for a loan is the quality of the lender. Choosing the wrong lender may turn your loan experience into one that you would prefer to forget.

The first step in choosing the lender is to establish the kind of loan for which you will be applying. If you have a good credit rating, and aren't seeking huge sums, you will likely be eligible for an unsecured loan at a standard financial institution. If you have good credit, but are looking for a very large amount, you may be required to apply for a loan secured with collateral. In either case, getting a loan with a major financial institution is almost always your best option.

Major financial institutions are typically trustworthy and have millions of customers to prove it. The danger comes if you have poor credit and must turn to alternative establishments for financing. The following are some of the factors that may help you to determine if the lender you choose is right for you.

1. Determine the type of loan you need. Any institution lending to an individual with poor credit, will have higher interest rates than standard financial institutions and will require that you use collateral to secure your loan. You will need to decide what asset(s) you would like to use as collateral for the loan. Remember, should you default, you risk losing this collateral, so this decision should not be taken lightly. Your answer to this question will determine what type of lender to look for.

2. Determine the reputation of the lender. You can do this by checking with the Better Business Bureau or a similar entity to see if the lender you are considering has a record of frequent complaints against them. If they have, or are a company that is not in good standing, then simply take your business elsewhere.

3. Determine if the lender is accessible. Are the loan officers friendly and helpful when you call to ask for information? If a phone call makes you feel as though you are burdening the lender's employees, look elsewhere. If they are an online loan provider, do they answer emails promptly? A lender that will provide a quality customer service experience will make the process much more pleasant.

4. Determine your budget, then check that the lender you choose has flexible payment plans to suit your budget. Some lenders may only provide very short-term loans and payments may therefore be more than you would like to be paying.

5. Finally read the fine print. Some lenders can get you into a cycle of paying down interest on a seemingly never-ending basis. Be sure that the terms of the loan are such that you will be paying down the principle as well as the interest, and won't have to refinance for another term once the loan period has ended.

Good, trustworthy sub prime lenders do exist. It just takes a little time and research to ensure that your loan experience will be a positive one.

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