How To Choose a Loan

August 30, 2017



If you need some extra money for a major purchase, home repairs, or even to pay off high-interest debt, you may be considering taking out a loan.  Don’t get yourself into trouble by getting a loan without thinking it through and doing the right research.

In order to know if a loan is the best solution for you; BBB encourages you to make sure that you understand how it works, who can benefit from a loan, what to avoid when shopping for a loan, and the changes you have to make in your behavior for it to work.

In general, a borrower needs good to excellent credit. Before signing on the dotted line or taking out a loan over the Internet, make sure you understand the terms. If you don’t know what fees you’re paying and aren’t sure you can afford the monthly payment, then don’t take the loan.

Loan Costs Versus Potential Earnings

It is recommended that you not borrow more than half of your expected starting salary rate of the profession that you choose.  Check out skills needed for potential careers and earning potential with the U.S. Department of Labor’s search tool at /

Do Advertised Rates Apply to You?

  • Your lender should fully disclose the actual interest rate and fees you will pay, in advance.  If this is not provided, don’t sign until you have received and understand a written explanation of all terms and conditions that apply to you.  Ask for an explanation for anything not clear.

  • In many cases, advertised rates are not the rates on the actual loan documents you sign.  Keep copies of offers received from your lender or school and compare to the terms in your actual loan papers.

  • Advertised rates may only be offered to people with high credit scores, so be aware that you won’t know the interest rate of a private loan until you apply because it will be based on your credit score, or the credit score of your co-signer.

  • To compare private loan interest rates, it may be necessary to apply for several loans.  If you apply for multiple loans within a short period of time, it probably will not affect your credit score adversely.

Watch Out!

  • Be wary if lender materials create the impression that they are connected to the federal government or if the lender offers free gifts or a sweepstakes.  

  • It is considered unethical for a lender to offer gift cards or other inducements to borrowers, schools or others in exchange for testimonials or loan applications. In some cases, this type of offer might be illegal under the Higher Education Act of 1965.

  • Scam websites may claim to offer scholarship information; be careful and submit personal financial information only when you have checked out the website and are confident that it is legitimate.

  • Check to see how long the lender has been in business.  Be cautious if the lender does not appear to be well-established.

  • If someone recommends a private loan before you have taken advantage of all grants and government loans or pushes you to make a fast decision, they could be steering you toward an inappropriate loan.  Ask questions, check other options, and compare terms before doing business.

  • Check with the Better Business Bureau (, your state Attorney General (, or your local consumer protection agency ( to see whether other consumers have complained about the private loan company you are considering.


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