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HOW TO SHOP FOR A LOAN

Published by sam - 11/09/07 - 09:09:41 am

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loan.jpgMany consumers in need of a loan sometimes that the bank will be doing them a favor.  But loans constitute the major source of income and profit for banks, so most often they are eager to sell you a loan as you local appliance store is to sell you a refrigerator.  It is important that you have an objective understanding of what you can afford to borrow and what you regard as its legitimate and affordable price.

Your Personal Situation

Before even considering a loan, you should review you assets to determine whether or not you have a savings account, securities, or some liquidatable property that is yielding you less than what you would pay in loan interest.  If, for example, you have $5,000 in a money market fund that is paying you three or four percentage point less than the current rate for personal loans, you can save money by withdrawing from the fund, either to eliminate your need for a loan or to reduce you loan principal.

Determining Costs

Your comparison shopping can be done most expeditiously by telephone, since most lenders are quite willing to quote rates and terms.  A half-dozen telephone calls can give you a reasonably firm impression of the prevailing rates in your community.  The only problem in such telephone comparisons is making certain that you are comparing rates on loans whose terms and conditions are identical in every respect. A casual telephone conversation may not disclose the full information that would be available front a longer visit in person and from brochures.

For some areas of the country, computerized data bases are available to provide the current rates and terms for mortgages offered by scores of banks.  For automobile loans, car dealers have access to computerize the date on rates.  Although you can use the computer data for a general picture of prevailing rates, you should still do some local comparison shopping on your own, since there is always the possibility that the lender offering the very lowest rate may not appear on the computer listing.  In addition, you should consider the alternative loan sources as I’ll post in the future.

Applying for the Loan

Some loan applicants, like those seeking college admission, try to play it safe by making more than one application.  This is not a sensible policy.  Since all banks use the same credit information, they are likely to view your application in the same light.  Worse yet, since each credit card applications is recorded on your credit report, the fact that you seem to be making more than one application may prejudice the bank against you.  In addition, a mortgage application, because it usually involves appraisal fees, is not inexpensive.  A sounder policy is to make the application to the one bank that offers you the best combination of rates and terms.

When you visit the bank to file your application, take with you as much information as possible to document your financial condition: brokerage, bank, and mutual fund statements; W-2 forms; your last year’s federal tax filing, especially if you are self-employed; current paycheck stubs; account numbers for your credit accounts; and any other evidence that might not appear on your credit report.

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