How to Compare Loan Offers
When shopping for a loan, you'll likely receive multiple offers with different rates, terms, and fees. Comparing them isn't as simple as choosing the lowest interest rate — fees, term length, and total cost all matter.
Key Factors to Compare
Interest Rate vs APR
The interest rate is the cost of borrowing the principal. TheAPR (Annual Percentage Rate) includes the interest rate PLUS fees, giving you a more complete picture of the loan's cost.
Always Compare APRs
Loan Term
Longer terms mean lower monthly payments but more total interest:
| $25,000 at 6% | Monthly Payment | Total Interest |
|---|---|---|
| 36 months | $760 | $3,373 |
| 48 months | $587 | $5,179 |
| 60 months | $483 | $6,998 |
| 72 months | $414 | $8,832 |
Common Fees
| Fee Type | Typical Range | Notes |
|---|---|---|
| Origination Fee | 0-6% of loan | Common with personal loans |
| Application Fee | $25-$75 | Sometimes refundable |
| Prepayment Penalty | 1-5% of balance | Avoid if possible |
| Late Payment Fee | $25-$50 | Check the grace period |
| Documentation Fee | $50-$500 | Covers processing |
Watch for Prepayment Penalties
Types of Lenders
| Lender Type | Pros | Cons |
|---|---|---|
| Banks | Relationship discounts, familiar | Stricter requirements |
| Credit Unions | Often lowest rates, member-focused | Must be a member |
| Online Lenders | Fast approval, easy comparison | May have higher rates |
| Peer-to-Peer | Alternative for lower credit | Higher rates, fees |
| Dealer Financing | Convenient for auto loans | Often not the best rate |
Get Multiple Quotes
What Affects Your Rate
- Credit score — higher = lower rate
- Debt-to-income ratio
- Loan amount and term
- Secured vs unsecured (collateral)
- Income and employment history
- Existing relationship with lender
Secured vs Unsecured Loans
| Secured | Unsecured | |
|---|---|---|
| Collateral | Required (car, home, savings) | None |
| Interest Rates | Lower (less risk to lender) | Higher |
| Approval | Easier with collateral | Based on creditworthiness |
| Risk | Could lose collateral if default | No asset at risk |
| Examples | Mortgage, auto loan, HELOC | Personal loan, credit card |
Red Flags to Avoid
- Guaranteed approval regardless of credit (scam alert)
- Upfront fees before approval
- Pressure to decide immediately
- No clear disclosure of APR and fees
- Balloon payments at the end
- Variable rates without caps
- Terms you don't fully understand
Frequently Asked Questions
Q: Should I choose the lowest monthly payment?
A: Not necessarily. Lower payments usually mean longer terms and more total interest. Compare total cost, not just monthly payment. Choose the shortest term you can afford.
Q: Is it worth paying points to lower the rate?
A: Calculate the break-even point. If points cost $1,000 and save $50/month, break-even is 20 months. Worth it if you'll keep the loan longer than that.
Q: How many lenders should I compare?
A: At least 3-5. Include your bank, a credit union, and online lenders. Different lenders have different criteria and may offer very different rates.
Q: What credit score do I need for the best rates?
A: Generally 740+ for the best rates. 670-739 is still good. Below 670, you'll pay more. Check your score before applying and work to improve if possible.
Q: Should I get pre-approved?
A: Yes! Pre-approval gives you negotiating power and a clear budget. Most pre-approvals use soft credit checks, so shop freely.
Q: Can I negotiate loan terms?
A: Yes, especially with banks and credit unions. Use competing offers as leverage. Fees are often more negotiable than interest rates.
Loan Comparison Checklist
- Check your credit score and report
- Get quotes from at least 3-5 lenders
- Compare APRs (not just interest rates)
- Calculate the total cost of each loan
- Read the fine print for fees and penalties
- Ask about prepayment flexibility
- Negotiate using competing offers
- Choose the loan with the best overall value
Loan terms and availability depend on your credit profile and lender criteria. This comparison is for illustration purposes. Always review the official loan estimate documents before signing.