The type of lender you use will be largely based on your needs. There isn’t just one checklist of qualities you need to look for in a lender. Here are some of the characteristics you want to look for in a lender.
Small or Large?
To start from a big picture, decide if you want to lean toward a small or a large lender. There are pros and cons to both. Here is what you need to think through for yourself.
Small lenders like Lance Advisors have much better personalized service. You will probably have a customer-service minded representative that will advise you, be proactive in your application process, and will really get to know you and your situation.
If this is your first loan, you may want that kind of white glove service to make sure you have all your ducks in a row, and that you’re not missing anything or have any blind spots that might bite you in the future.
Sometimes it pays off in the long run to have an expert hold your hand through the process if you’ve never gone through something like this before. And getting a loan is a big deal that will have long term consequences on your future.
Larger lenders, although you may be just a loan number to them, have their advantages too. The main upside to larger institutions is that you may get a better interest rate. Larger banks have representatives you can talk to as well, but they may not give you the white glove treatment like a smaller player.
Shop Around for the Best Deal
Not all loans will fit your needs. For example, maybe you’re a first-time home buyer. If that is the case, there are a ton of great programs you can take advantage of.
For one, many institutions offer low or no money down loans to first-time home buyers. Some even pay closing costs. You still have to do some comparison shopping because even these programs are not uniformed.
For example, you may go to a credit union and they offer you a no-money down mortgage at 4.75%. Maybe they even roll your closing costs, which could amount to thousands of dollars, back into your mortgage. Those things can go a long way for a young family looking to purchase a new home.
Then maybe you go to the local branch of a large national bank. You look at what they offer first-time buyers and they best down payment deal they have is 3% down. That’s still pretty good. But that may still be upwards of $10,000 depending on where you are in the country.
That’s still a lot of cash down, but maybe their interest rate is 4.5% because they’re a larger lending institution. Well, if you have the cash to put down, that .25% interest rate difference may save you literally tens of thousands of dollars over the life of your mortgage.
Which deal would be best for you? Again, it depends. That’s why you should shop around.
You also want to know what kind of collateral your lender wants. Using collateral is also known as asset based lending.
This is where a lender will use an asset that you own to back up your loan. That means in the event you fail to make your debt payments, the lender can take possession of that asset and liquidate it to pay the balance of your loan.
Real estate is the most common form of asset backed lending. The bank will foreclose on your house, then sell it back to the market to recoup the balance of your mortgage.
Car loans are similar. If you miss a certain amount of car payments, they will come and repossess your vehicle until you can become current on your payment or they will sell it to satisfy the balance of that loan.
When you shop around for loans, you must know if that loan is backed by any collateral. Sometimes backing it can significantly reduce your interest payment because collateral offsets risk for the lender.
Reputation of Lending Institution
Check to make sure you are working with a reputable lending institution. Even if it’s a newer lender like Lance Advisors, you’ll still be able to find customer reviews online.
You can also see if the institution you are considering has been charged with any fines or penalties by the government.
No matter what kind of loan you are looking for, there are many institutions out there with the capital ready to be handed out, at a cost. The competitive nature of the lending industry is ripe for you as the consumer to shop around for the best deal. It also means you are never left with only one option for getting the cash you need, when you need it.