If you’re planning on buying a home, car, or making any kind of large purchase that would require a loan; you’ve probably been advised to shop around for the best rates. But when lenders don’t necessarily advertise their exact rates, just how do you get started? We’ll talk you through the variables that might affect your loan rate and help you shop for the best loan you can get.
What affects my loan rate?
The rate you get on a loan depends on a number of different variables, including your credit rating, how much of a down payment offering, what you’re buying, the duration of the loan (and the “lock-in” period where the bank will honor an agreed on rate before you take out the loan), and whether you’re buying “points” — which will cost you up front but lower the interest rate you’re paying.
Though this sounds complicated, it all comes down to this: the less risk your lender thinks it’s taking, the lower the rate it will offer you while more risk equates to a higher rate. Risk, to your lender, could mean a poor credit score or a low down payment… but what’s risky and what’s a safe bet will vary from lender to lender. Whether your credit is good, bad, or just okay, spending some time to shop around will let you know what your options are and help you get the best rate possible.
Start your shopping online
Unfortunately, finding the best deal is going to require some legwork on your part. The first step is to get an idea of what’s a good rate by searching online: calculators at Bankrate (mortgage http://www.bankrate.com/funnel/mortgages/ and auto http://www.bankrate.com/funnel/auto/) let you enter some basic information about the loan you’re looking for and will tell you the rates you might get at different financial institutions. These rates aren’t a guarantee, but they will give you an idea of what you can expect for the type of loan you’re considering, as well as let you easily compare loan types.
Browsing before you start talking to financial institutions will mean you’ll know immediately if you’re getting a good offer… or if you should keep shopping around.
Get offers from multiple financial institutions
The next step is to contact financial institutions you might be interested in to get a firm offer from, these may wind up being better or worse than what you’ve seen online. Ideally, you’ll want to check with several different types of lenders — and, likely, compare several different types of loans — to see what the best deal on offer is.
While you’re shopping, pay careful attention to fees and other fine print: some loans may look like a good deal, but pile on higher fees up-front that make it less desirable. If fees are bundled together as a lump sum — some lenders will do this — make sure you find out exactly what you’re paying for. In the end, you want to be sure you know all of your costs before signing on the dotted line!
When you’ve decided on the offer that works best for you, you’ll want to ensure that the lock in term is sufficient — most lenders will lock in for 30 or even 60 days, but may offer you a better rate for a shorter lock-in period if you don’t need the time.
Should I use a mortgage broker?
You can skip the heavy lifting here by using a mortgage broker, who will compare loan rates and help shop around for you. The downside, however, is that brokers aren’t necessarily obligated to find you the best rates — and they may gravitate towards offers that net them the most profit. But a good broker can take some of the headache out of loan shopping if you don’t have the time or inclination to do it yourself, just be sure you’re dealing with a broker you can trust.