Being offered a loan is great (you’re creditworthy!) but before you sign, see if the offer is worth your hard-earned money.
These are some key terms to look for when assessing your options and reviewing before you sign the agreement.
The term is how long you have to repay the lender. If you decide during the term that you want to pay your loan off early, see if you’ll be charged a prepayment fee. It could help you decide if it’s worth doing. (We discuss prepayment fees a little later.)
Looking at a loan’s interest rate is not enough information to make a decision, because what you truly end up paying could be more than the amount you’ve borrowed and any interest that’s accrued. (Surprising, right?)
This is why you want to look at the APR: It summarizes the interest, upfront costs and fees you’ll pay over the course of the year. This summary is expressed as a percentage of the amount borrowed.
When a loan has a fixed rate, it means just that – the rate you see is not going to change over your loan’s term. This can add some stability in terms of monthly expense planning, but racking up fees between payments (if there are any) could increase what you pay overall.
When a loan has a variable rate, things could change. This can be good if the rate goes down, because more of your monthly payment chips away at your loan and less goes to interest. But it also means your rate could go up. The change won’t be sudden, so you’re not looking at a month-to-month roller coaster, but the rate can change according to a schedule.
The payment due date is when payment is due. From a lender’s point of view this means the day they have cash in hand.
So what’s the big deal? Timing.
You should plan on submitting the full monthly payment. If you pay less than what’s required, you could be considered late or in default.
You may be able to automate your loan payments so the full amount is withdrawn from your account and sent to your lender on the same day every month. This could remove some of the stress of remembering payments are due.
If you submit a payment after the due date, a few things could happen:
It's worth repeating that you’re considered late if you pay less than what’s due. Late payments can hurt your credit score even if your lender doesn’t charge a late-payment fee.
Call your lender as soon as you’re aware that you may not be able to make a payment (or two). They know things happen, and when you call your lender you’re doing two important things: you’re giving them notice and the opportunity to see if there’s a way to help. It could also protect your credit score.
If you pay late or pay less than the minimum, the sting could include a fee, more interest and possible damage to your credit score. Your late fee could be a flat fee or a percentage of your monthly payment.
Prepayment fees are kind of like a separation agreement where you pay the lender a fee if you pay all or part of your loan early. If there is a prepayment fee it's because when you pay off your loan early, the lender receives less interest.
If you’re paying off a loan with another loan – called refinancing – you may need to consider prepayment fees along with what your new lender may charge you, such as origination and late fees, among others. This additional information could help you determine if the newer loan is a better deal than your current one.
Lenders may call this fee by a few names, including a sign-up fee, but it’s the same thing – a fee some lenders charge to process a loan application.
There are two key ways lenders charge origination fees:
Lenders may deduct the fee from the loan amount. If this is the case, you’ll receive less money and pay interest on the full amount.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.