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Shopping Around For a Loan

Before you take out a loan, it’s a good idea to shop around with a few lenders to make sure you’re get the best loan deals.

Check Your Credit
First, consider your credit history. It’s always a good idea to check your credit report and credit score before you shop for a loan. That way, you can gauge your likelihood of getting approved without actually applying for the loan. Each loan application puts a credit-score damaging inquiry on your credit report and can hurt your chances of getting a subsequent application approved. Check your credit report for any errors and dispute them before putting in your loan application. Make sure you’re current on all your accounts, even debt collections, to improve your chances at getting improved.

Find Out the Cost
Get the cost information – interest rates and fees. As you discuss the loan with a loan officer, make sure you completely understand the cost of the loan. The Truth in Lending Act requires lenders to give you a disclosure that outlines the interest rate and fees of the loan. It will include details about the annual percentage rate (APR), finance charge, amount financed, and total payments by the end of the loan. Each of those factors is important. Look for a low interest rate loan with a low total payment amount.

Know the Life and Payment Amounts of the Loan
Get the length of the loan and monthly payments. It’s important to know how long you’ll be paying on the loan and how much you’ll be paying each month. You want to afford your monthly payments, but keep in mind the lower your payments, the longer you’ll pay on the loan, and the more you’ll pay in interest charges.

Get Loan Quotes
Compare quotes from different banks. Don’t stop at a quote from a single bank. Chances are, there’s a better deal out there, but you don’t know until you look. Get quotes from at least three different banks and compare the terms of each. Unless you’re shopping for a mortgage, you should do your loan shopping as quickly as possible. Mortgage loan applications made within 30-45 days won’t affect your credit score, but other loan applications will hurt your score as soon as the inquiries appear on your credit report. You can always explain away inquiries by letting lenders know you’re shopping around. If you have a solid credit score, additional inquiries might not hurt too much.

Negotiate the Best Loan Terms
Negotiate a better deal. If you like a bank, but don’t like part of the deal you’ve been offered, try to negotiate a better one. It’s easier to negotiate if you have good credit and a steady income on your side. Let the loan officer know you’re looking for the best deal. Don’t be afraid to turn down a loan offer that is outside your price range.

Loan Discrimination is Illegal
Lenders must give your loan application fair consideration. The Equal Credit Opportunity Act, a federal law, prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, participation on a public assistance program, or exercising rights under the Consumer Credit Protection Act. If your loan application is denied, the lender should send you a letter letting you know why. You may be able to fix the reasons and reapply.…

Major Changes to Credit Card Rules

The Federal Reserve voted on December 18 to approve rules that would reform several unfair practices within the credit card industry. Some of the rules include:

No interest rate increases during the first year of opening an account, unless the interest rate increase was disclosed when you opened the account. You can enjoy your interest rate for a full 12 months without having your credit card issuer increase your interest rate. The exception is when the lender told you your rate would increase when you opened your account. For example, you knowingly signed up for a credit card with a 6-month promotional rate.

No interest rate charges on pre-existing credit card balances. If your interest rate increases, you can continue to pay your current balance at the lower interest rate. Only charges made after the interest rate increase will have the new interest rate.

Credit card issuers must give a 45-day notice before increasing your interest rate. This is a drastic change over the current 15-day advance notice time period. The 45-day advanced-noticed includes penalty rate increases.

Your minimum payment can be increased if you don’t make the minimum payment within 30 days of the due date.

No more double billing cycle finance charges in which credit card issuers calculate your finance charge using an average of the current and previous month’s average daily balances. Under this method, you would end up paying interest on balances you’d already paid.

Subprime credit cards can no longer charge fees that exceed 50% of the credit limit. Furthermore, the fees charged when the credit card is first opened can’t exceed 25% of the credit limit. Other fees must be spread evenly over a minimum of 5 billing cycles.

Although the rules make strides in protecting consumers from unscrupulous credit card issuers and their expensive practices, they won’t take effect until January 1, 2023. That gives credit card issuers plenty of time to wreak havoc on consumers.…

Long Loan Shopping Could Hurt Your Credit Score

It’s a good idea to shop around for a loan to make sure you get the best terms and even better the lowest interest rate. But, loan shopping could hurt your credit score.

An inquiry is placed on your credit report each time a lender checks your credit history to qualify you for a loan. Your credit report is a compilation of most of your credit and loan accounts and is the key factor used to determine your credit score. Credit inquiries count for 10% of your overall credit score. Each additional inquiry can knock your credit score down a few points, affecting your ability to qualify for another loan.

The model for the FICO score – the most well-known and widely-used credit score – helps protect you from the impact of rate shopping for mortgage and auto loans. The scoring model essentially ignores inquiries made within a 30-day window while you’re rate shopping. So, if you find a loan during that time, your lenders never know you’ve been putting in loan applications all over town. Even after the 30-day “grace period” is up, all the inquiries you’ve made are treated as just one inquiry when your credit score is updated.

The FICO score calculation has been updated a few times over the years, so the length of the grace period depends which credit score calculator your lender’s using. One model has a 14-day grace period, another uses 30-days, and the newest model uses a 45-day time span.

It’s important to note that the loan-shopping grace period for credit report inquiries only applies to mortgage and auto loans. If you’re shopping for another kind of loan, you don’t get the convenience of hidden inquiries. When you’re on the market for a personal or student loan, your best bet is to find a loan within a few days before the credit report inquiry makes it to your credit report. Otherwise, your credit score will feel the full brunt of your rate shopping. Then again, inquiries only count for 10% of your overall score, so they couldn’t hurt that much, could they?…