Questions to Ask When Getting a Loan
For anyone comparing personal loans, or any other consumer loan, from a bank, credit union or online lender before signing. The questions follow the order of the decision: rate and cost, fees, applying, repayment, what happens if things go wrong, and the last checks before you sign.
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The questions
Each question, and why to ask it
Rate and cost
What is the APR on this loan, and how is it different from the interest rate you are quoting?
Why ask it
The APR is meant to fold the lender's charges into one yearly cost, which makes it the figure to line up across lenders. Ask which fees are counted in it here, because that varies with the type of loan and where you live. Be wary of anyone who keeps steering you back to the monthly payment.
Is the rate fixed for the whole term, or can it change?
Why ask it
On a fixed-rate installment loan the payment should be the same in the last month as in the first. If the rate is variable, ask what it follows, how often it can move and whether there is a ceiling, then have them work out the payment at that ceiling.
How much will I have repaid in total by the end of the loan?
Why ask it
Ask for one figure in dollars: everything you borrow plus all the interest and fees. Take away the amount you receive and what is left is the price of the loan, which is easier to judge than a percentage.
Can I check my rate with a soft credit check before you run a hard inquiry?
Why ask it
A plain yes, plus the exact step at which the hard inquiry happens, is what you want to hear. Where a lender can only quote after a full application, collect your other quotes first and leave that one until you are close to choosing.
Is this the rate I would actually get, or the lowest rate you advertise?
Why ask it
Rates sold as 'from' or 'as low as' go to the strongest applicants, and yours may be higher. Ask for a figure built on your own details, in writing, and compare only figures like that.
What does the same amount cost over a shorter term and over a longer one?
Why ask it
Have them show the payment and the total for two or three lengths side by side. The longer term tends to win on the monthly figure and lose on the total, and seeing both lets you pick the shortest one whose payment you could still carry in a bad month.
What is this quote based on, and what would get me a better rate?
Why ask it
Listen for specifics: a score band, your income, the amount, the term. Sometimes a smaller loan, a shorter term or paying down one card first moves you into a cheaper tier, and a loan officer who tells you so is being straight with you.
Is there a cheaper way to borrow this amount from you, such as a secured loan or a line of credit?
Why ask it
A bank or credit union with several products can usually price the alternatives next to the personal loan. The cheaper ones tend to be cheaper for a reason, a pledged asset or a rate that can move, so ask what you would be giving up for the lower figure. A lender that sells a single product cannot answer this, which is one reason to get a quote from somewhere that can.
Do you offer rate discounts, such as for automatic payments or for holding an account with you, and what happens if I stop qualifying?
Why ask it
Check whether the rate you were quoted already includes the discount. If it does, ask what the rate becomes when an automatic payment is cancelled or the account is closed, since that is the rate to plan around.
How long is this quote good for, and is it final or still subject to checks?
Why ask it
You need the expiry date to know how long you have to compare. A quote that still depends on documents being verified is an estimate, so ask which checks are left and what result would move the rate.
Fees
Is there an origination fee, and is it taken out of the money I receive?
Why ask it
When the fee is deducted up front, less arrives in your account than you borrowed, and interest is usually charged on the full amount. Ask for the exact sum that will be deposited. If you need a precise amount, to clear a card for instance, ask what you would have to borrow to end up with it.
Is there an application fee, or anything I pay before the loan is funded?
Why ask it
Ask what the charge covers and whether it comes back if you are declined or walk away. Treat a request to send money first, by gift card, wire or a transfer to a person, as a reason to stop and check who you are dealing with.
Can I have a written list of every fee that could be charged over the life of the loan?
Why ask it
A lender with nothing to hide sends a schedule: late payment, returned payment, payoff statement, document copies. Read it for anything charged monthly or yearly, which adds to the cost without showing up in the rate.
How can I make payments, and does any method carry a charge?
Why ask it
Small charges for paying by phone, by card or by mailed check add up across years of payments. Find out which method is free and use it from the start, and check that you can see your balance and history online, which is how a misapplied payment gets caught in the month it happens.
Is any insurance or payment protection included in this quote, and can I take the loan without it?
Why ask it
Add-ons like these are sometimes folded into the payment without being named. Ask for the quote with and without each one, and ask whether declining changes the rate or the approval. If you do want cover, price it elsewhere before buying it here.
Is the fee negotiable, or is there a version of this loan with a lower fee and a higher rate?
Why ask it
Some lenders will trade one for the other. A fee is normally spent on day one, while a higher rate only costs you while there is a balance, so the better version depends on how long you expect to keep the loan. Ask whether any of the fee comes back if you pay off early.
Applying
Are you the lender, or do you pass my application to other companies?
Why ask it
Comparison sites and brokers can be useful, but you should know who ends up holding the loan and how many firms will see your details. If the answer is a panel of lenders, ask whether each one runs its own credit inquiry and whether you will get marketing calls.
Are you licensed or registered to lend where I live, and how can I check?
Why ask it
Ask before you hand over an ID number or bank details, above all with a lender you found online and have never visited. A legitimate one answers without taking offense and tells you which regulator licenses or supervises it, so you can look it up yourself. Which body that is depends on the kind of lender and where you live.
What do you need from me to approve this loan?
Why ask it
Expect identification, proof of income and bank details at the least, and ask for the whole list at once so you are not sent back three times. Find out as well whether they will call your employer, which is better known before it happens.
What credit score and income are you looking for, and where do I stand against them?
Why ask it
Some lenders publish a minimum and some will not say, but a loan officer can often tell you whether you are comfortably inside or on the edge. If you are on the edge, ask what would be approved, a smaller amount for instance, before they run the full application.
How do you count my existing debts against my income, and is there a limit?
Why ask it
The answer shows whether the loan you want fits their rules easily or only just. Ask which debts they count, since rent, card minimums and student loans are treated differently from lender to lender. If the loan is to pay off other debts, ask whether those are left out of the sum.
Is this loan secured against anything I own?
Why ask it
An unsecured loan rests on your promise and your credit record. A secured one names a car, a savings account or another asset the lender can go after if you stop paying, so ask exactly what is pledged and have them point to the line in the agreement.
Would a co-signer or joint applicant change the rate, and what exactly would they be agreeing to?
Why ask it
A second person with stronger credit can lower the rate, but ask the lender to spell out their side: whether they owe the full balance if you stop paying and whether the loan appears on their credit report. Have that explained to them directly, not relayed by you. Ask whether they can be released later.
Are there limits on what I can use the money for?
Why ask it
Lenders often rule out some uses, and the list differs from one to the next: tuition, a business, a down payment, investments. Say what the loan is for and get a clear yes, because using it for an excluded purpose can break the agreement.
What are the smallest and largest amounts you will lend, and can I take less than I am approved for?
Why ask it
Being approved for more than you asked for is an offer, and you can turn it down. Borrow the sum the job needs, and check whether taking less changes the rate or the fee.
My income is not a regular salary. What will you accept as proof of it?
Why ask it
For the self-employed, people paid by the job and anyone living partly on benefits. Skip it if you have pay stubs. Useful answers name documents: tax returns, a year of bank statements, award letters. If all you hear is 'we look at everything', ask who makes the decision and what they will want to see.
If you turn me down, will you tell me why, and how soon could I apply again?
Why ask it
The reason is the useful part, because it tells you whether to fix something or try a different kind of lender. Ask what notice you are entitled to where you live, and whether a declined application leaves a hard inquiry on your file.
Repayment
What will the monthly payment be, and can I choose the date it is due?
Why ask it
Test the payment against your budget in an ordinary month and in a tight one. A due date a few days after payday is easier to keep to, and it is simpler to set now than to move later.
When is the first payment due, and does interest start the day the money is sent?
Why ask it
A long gap before the first payment is not always free, because interest may be running from the day of funding. Write the first due date down: it arrives before any routine exists, which makes it an easy one to miss.
Are all the payments the same size, or is there a larger one at the end?
Why ask it
On a level installment loan a quick yes ends the matter. If there is a balloon payment, ask for the amount and how borrowers are expected to meet it. A plan that depends on refinancing later depends on being approved later.
Is there a penalty or fee for paying the loan off early?
Why ask it
A clear 'no', shown to you in the agreement, is the answer to hope for. If there is a penalty, ask how it is worked out and whether it ends after a certain date, then weigh it against your chances of clearing the loan early with a bonus or a refinance.
If I pay extra, does it go to the principal, and do I have to tell you that is what I want?
Why ask it
Extra money can be applied to the balance, held as an early next payment or put toward future interest, depending on the lender. Ask how to mark a payment so it reduces the principal, then look at the next statement to see that it did.
How is interest worked out: on the balance I still owe each day, or fixed up front for the whole term?
Why ask it
When interest is charged on the remaining balance, paying early or paying extra saves money. If it is set at the start and built into the payments, ask how much of it you would get back by clearing the loan early, since that can be less than you expect.
Do you report my payments to the credit bureaus, and to which ones?
Why ask it
If part of the point is building credit, on-time payments only help where they are reported, and not every lender reports to every bureau. Ask when the loan first shows on your file, and check it yourself a couple of months in.
How do I get a payoff figure, and how long does it stay valid?
Why ask it
The payoff amount is usually not the balance on your statement, because interest can keep adding up by the day. Knowing the process now saves a scramble if you refinance or come into money, and it is the moment to ask whether the statement itself costs anything.
Who will I be making payments to, and could the loan be sold or handed to another servicer?
Why ask it
Loans do change hands, so ask whether the terms stay the same if yours does and how you would be told. Be suspicious of any notice to pay someone new that you cannot confirm with the original lender.
If things go wrong
What is the late fee, and is there a grace period before it applies?
Why ask it
Get the number of days and the amount, and ask whether the fee is flat or a share of the payment. This is the cost of one bad month, which is the slip most worth planning for.
How many days late does a payment have to be before you report it to the credit bureaus?
Why ask it
The fee and the report can run on different clocks. Where there is a gap between them, a payment made a few days late costs money but may leave your credit history alone, so find out exactly where the line sits.
If an automatic payment fails, do you try again, and what does each failed attempt cost?
Why ask it
A retry can be a kindness or a second fee, depending on how the lender does it. Your own bank may charge for the returned payment as well, so ask how much warning you get before the second attempt.
Does a late payment raise my rate or cancel a discount?
Why ask it
No, in writing, is what you are after. If a penalty rate exists, ask whether it is permanent or ends after a run of on-time payments, and whether a lost discount can be earned back.
If I lost my job or got sick, could I pause or lower the payments for a while, and what would it cost me?
Why ask it
Lenders that have a hardship process can describe it: who to call, what proof they want and whether interest keeps building during the pause. 'We deal with it case by case' is not a no, but ask for an example of what they have done before. The time to call is before the payment is missed.
At what point is the loan in default, and can you then demand the whole balance at once?
Why ask it
Default can begin after one missed payment or after several, and the agreement says which. The clause that lets a lender call in the full balance is often headed acceleration, so have them show you that wording and ask what comes next: collection calls, an outside agency, court. How far it can go depends on the law where you live, so ask how it works there.
If we disagree about a fee or a payment, how do I dispute it, and who can I go to if we cannot settle it?
Why ask it
Look for a named process and a time limit for a reply. Ask whether the agreement requires arbitration, and which regulator or ombudsman covers this lender where you live.
Before you sign
How soon after approval will I have the money, and how is it paid out?
Why ask it
Ask for the realistic time, not the advertised one, and what could hold it up: a document check, a holiday, your own bank's delay. If you have a deadline, say so now.
If this loan is to pay off other debts, do you pay those creditors directly or send the money to me?
Why ask it
Skip this unless you are consolidating. Direct payment is tidier, and some lenders price it better. If the money comes to you, pay the old debts the same day and confirm each balance reaches zero, because a trailing bit of interest can leave an account open.
Can I take the full agreement away and read it before I sign?
Why ask it
Any pressure to sign today is a reason to slow down. At home, check four things against your quote: the amount financed, the APR, the payment and the number of payments.
Has anything changed between the quote and this agreement?
Why ask it
Ask it out loud at the signing and let them answer before you read. Changes after verification do happen, but each should come with a reason you can check, and a changed rate is a fair reason to go back to your other quotes.
Once I have signed, is there a period in which I can cancel, and what would I owe if I did?
Why ask it
Whether a cooling-off period exists depends on the kind of loan and where you live, so ask how it works there. If there is one, find out how to cancel in writing and whether you would owe interest for the days you held the money.
Who do I contact with a question once the loan is open, and how do I reach a person?
Why ask it
Find out whether the person who arranged the loan stays your contact or the account moves to a service center after funding. Write down the phone number, the hours and the address for anything that has to be sent in writing, and keep them with the agreement.
How to compare loan offers
Practical guidance for the conversation itself
Before you ask for quotes
Settle the amount and the payment first
Work out the sum the job needs and the payment you could still make in a bad month before you speak to anyone. A lender will tell you how much you can borrow. Only you know how much you should.
Read your own credit report
See it before a lender does. An error found now can be disputed before it sets your rate, and a rough idea of your score tells you which advertised rates are realistic for you.
Try different kinds of lender
The bank you already use, a credit union and an online lender can price the same borrower differently. Three quotes from soft checks, where lenders offer them, give you something to bargain with before you make any full application.
Find out what each quote does to your credit file
Whether several loan inquiries close together are counted as one depends on the scoring model and the country. Ask each lender how it works where you live instead of assuming, and keep full applications for the offers you would actually take.
While you are asking
Ask every lender the same six
The APR, fixed or variable, the total repaid, whether the quote came from a soft check, whether it is your rate or the advertised one, and the amount that will reach your account after fees. With those six from every lender you can compare. The rest of the list is for the one or two you are serious about.
Ask for figures, not adjectives
'Competitive' and 'low' are not answers. If a question about cost comes back without a number in it, ask again, and write down the number along with the date and the name of the person who gave it.
Get the quote in writing
Ask for it by email with the amount, APR, term, payment and fees on one page. A figure someone is willing to write down is one they expect to stand behind, and it is what you will hold the final agreement against.
Notice what is volunteered
A lender who brings up the origination fee, the late fee and the early payoff terms before you ask is showing you how the next few years will go. One who answers each question with the monthly payment is showing you that too.
Comparing two or three offers
Put them on one page
One row per lender: amount received, APR, term, monthly payment, total repaid, fees and early payoff terms. Gaps in a row are questions you still have to ask.
Match the term before you compare the payment
A lower payment over five years against a higher one over three is a longer loan, not a cheaper one. Ask each lender to quote the same amount over the same term, then look at the total repaid.
Price the bad month
Set the late fee, the grace period and the hardship options beside the rate. Two loans with the same APR can treat a missed payment very differently, and that difference only shows when you need it.
When two offers are close
Take the one with fewer conditions: no discount that can be lost, no charge for paying early, a lender you could reach by phone. A slightly higher rate on a plain loan can be the better deal.
Reasons to walk away
Money wanted up front
Be very careful with anyone who wants a payment before the loan is funded, above all by gift card, wire or a transfer to an individual. Stop, look the lender up with the regulator where you live, and call them on a number you found yourself.
Approval promised before any check
A lender that says yes without looking at your income or credit may be pricing in everyone who cannot repay, or may not be a lender at all. Ask for the APR and the total repaid in writing and see whether the offer survives.
Pressure to sign today
An offer that expires this afternoon leaves no time to read or compare. Ask for the expiry date in writing, and take the agreement home if they will let you. If the offer cannot wait a day, let it go.
Blanks and mismatches
Do not sign an agreement with empty fields, or one whose amount, APR or payment differs from your quote without an explanation you can check. Ask for a corrected copy and read it again from the top.