When you want the best price on a new TV, you shop around. You compare prices at various retailers, and you look up consumer ratings. No matter what you are shopping for, it makes sense to look around for the best deal. This applies to loans just as much as it applies to consumer goods.
In fact, it’s more important to shop around for the best deal when you are getting a loan. The interest charged on a loan can result in thousands of dollars spent. If you don’t get the best deal, you could wind up paying far more than you expected over the life of the loan.
Know Your Credit Score
The first step is to understand your credit situation. Your interest rate is based on your credit score, so you need to know where you stand. If you have a good credit score, you can ask for the better interest rates. Understand what constitutes a “good” or “excellent” score, and know what to expect for your credit range. That way, you’ll know whether or not you are getting a good deal.
Compare Apples to Apples
Figure out what loan terms you want before you start shopping around. You can’t compare a 36-month car loan to a 60-month car loan; the rates are going to be different. Likewise, you can’t compare a $150,000 mortgage with a 20 percent down payment to a $200,000 mortgage with a 10 percent down payment. Make sure that you are clear on the terms before you start shopping around so that you can make a valid comparison.
Get Three or Four Quotes
You want at least three or four quotes on loan rates and terms. Don’t forget to compare fees charged. You might see a rate that 0.5 percent lower on one loan, but the origination fees might be high enough to offset that rate. Make sure you understand all the fees and how they add to the cost of the loan. When you have three or four quotes (make sure the lenders know you are shopping around, so they’ll compete for your business), you can make a better determination.
One of the easiest ways to get multiple quotes is to use an aggregator. Sites like RateZip can help you shop around for the best loan rates so that you save money. Depending on the length of your loan, you could save thousands -- or even tens of thousands -- of dollars, just by shopping around for the best loan deal.