3 things lenders won’t tell you about your next loan

The most important part of taking out a loan is finding one that’s right for you.

Key points

• The higher your credit score, the better your loan offers.
• Shopping saves money.
• Correcting a single mistake on a credit report can boost a borrower’s credit score.

Whether you take out a personal loan, buy a new car or sign a mortgage with a new lender, no two loans are the same. Regardless of your credit score or how long you’ve spent building a credit history, rates and terms vary by lender. Due to federal law, lenders are now more transparent than before, but there are still a few things lenders like to keep under their collective hat. Here are three.

1. If you had shopped around, you probably could have gotten a better loan

No bank or credit institution will tell you what mistake you made working with them. If they were honest, however, someone would say, “You know what? If you had taken the time to evaluate your purchases and consult other lenders, you could have obtained a lower interest rate.

They’re also unlikely to admit, “We know our low interest rate gets people’s attention, but the truth is that when you add up all the fees we charge for a loan, the cost real to borrow money from us is ridiculous. .”

Point: Always shop around with lenders. Even if the interest rate you find is only 1% lower than others, you can save thousands of dollars over the life of a loan.

2. We are about to charge you unwanted fees

When you consider how much a loan will cost when it is fully repaid, what enters into your calculation? For most of us, it’s principal and interest. For many borrowers, however, unnecessary fees are costing them far more than they anticipated.

For example, some personal lenders charge origination fees. Typically, these fees range from 3% to 8%. Let’s say a lender approves your loan application for $20,000 but charges a 5% origination fee. This means he takes $1,000 off the top (5%) and deposits $19,000 into your Bank account. However, instead of having to repay $19,000, you must repay the entire $20,000, even if you never saw $1,000.

Lenders will provide you with a disclosure form outlining all fees, but some do their best not to overemphasize how much these fees will cost you. Here are some of the other sneaky fees that lenders rely on to make a profit:

• Registration fees: The amount you pay to certain lenders just to apply for a loan.
• Prepayment penalty: Fees that some lenders charge borrowers to repay a loan before it is due.
• Credit insurance : Credit insurance comes into play to pay off a personal loan if specific things go wrong and you are unable to make payment. There are two important things to mention here: The first is that a healthy person emergency savings fund may eliminate the need for credit insurance. Second, you must sign a form adding credit insurance to your loan. The lender cannot do this without your express permission.

Point: The interest rate offered to you is much lower than the annual percentage rate (APR). APR represents how much a loan is really going to cost you. Ask a lender specifically what the APR of the loan is, then ask to see all fees in writing.

3. If you clear “that thing” on your credit report, your credit score will increase and you will have access to low interest loans.

Borrowers with the highest credit scores not only have a litter of choices when it comes to lenders, but they tend to land loans without origination fees, prepayment penalties, or other unwanted fees. And this is where things get complicated.

Let’s say you have an average credit score, somewhere around 700. That’s not high enough to give you access to the best loans, but it’s not terrible either. What a lender does not want to tell you is that there are steps you can take to boost your credit score.

One of these steps is to order a free copy of your credit report from the three major credit bureaus. You are entitled to a free copy once a year and can order them through a site like annualcreditreport.com. Once you have the reports in hand, comb through them for any errors. For example, a report that lists a loan as “active” when it is actually repaid is an error.

Dispute all errors with the credit reporting agency in question. By law, credit reporting agencies have 45 days to prove the report is correct or to remove the negative remark from your report.

Depending on the nature of the error, removing a single error can raise your credit score enough to push it into a upper range. The higher your credit score, the more lenders will want to work with you and the better your loan terms will be.

Point: If you’re not offered the APR or loan terms you want, back off long enough to focus on improving your credit score if possible.

Lenders may not be quick to tell you how you can save money, but now that you know, the ball is in your court.