No matter the loan purpose or the type of loan you choose — installment or revolving; secured or unsecured — consider the rates, fees and conditions. Create a list of your options.
For example: An auto loan may be an option if you are buying a new car. It would be secured by the car and could be offered by a dealership or third party. Auto loans often require sizable down payments.
Or, if you don’t have the cash on hand for that, you could look at a personal loan instead. Since personal loans are unsecured, they sometimes come with a higher interest rate, but there are plenty of options even for those with lower scores. Be sure to shop around.
Another consideration is the type of interest offered. Does a simple (based on the loan amount) or compound (based on interest plus the loan balance) interest loan better meet your financing needs? Does it make sense to look for a fixed (does not change) or adjustable (goes up or down with the market) rate loan? While fixed-rate loans offer lower risk in terms of interest rate increases, they often come with higher interest rates.
One common mistake when comparing options and securing a loan is to think too narrowly. While it is important to look at monthly payments, there are many other things to consider. Factors such as loan types, length and interest options can greatly affect the impact borrowing the money will have on your overall financial situation – both now and for years to come.
Whatever type of loan you are considering, be sure you know the type, repayment obligations and total cost before deciding.