How-To Guides

GUIDE: Save Money by Thinking Like a Lender

Between fees and interest payments, borrowing money is almost always more expensive than you initially think. But if you know what to expect before applying for financing, you can put yourself in a better position to save money in the process.

Here’s how thinking like a lender can help you save money when you have to borrow.

Know What Lenders Are Looking For

One of the worst things you can do is simply apply for the first loan, credit card, or other lending offer you see. By shopping around, you not only can compare interest rates and fees but you’ll also get a better idea of what lenders are looking for.

Ask yourself, if you were the one asked to loan someone a lot of money, what factors would you consider?

  • What would make a borrower seem too risky for me to take a chance?
  • What are some good signs in their credit history that would make me trust them?
  • How can I mitigate my own risk if I decide to loan this person money?

It doesn’t matter if it’s a bank offering mortgages, an auto dealer’s finance department, or a credit card company. Understanding what potential creditors are looking is the first step to making yourself a more attractive borrower.

Keep Your Expectations Reasonable

The riskier the loan is for the lender, the more you’re going to pay as a borrower. This is why things like payday loans are so notoriously expensive.

Because of that, your expectations play a big role in your ability to save money as a borrower. It might be wise to scale those expectations back a bit—to a lower credit limit, a loan for a less expensive car, or a more reasonable mortgage.

It’s very possible you’ll find someone willing to loan you what you initially want. But again, think like a lender. If you know someone will either struggle to pay you back or that it will take them a long time to repay a loan, you’re going to charge them more. That’s how all lenders make money, but predatory lenders exploit those situations to maximize fees and interest from borrowers who can’t really afford it.

The quicker you can pay off a loan, the less you’ll ultimately pay to borrow that money. Always keep that in mind to avoid overpaying by spreading yourself too thin. To help, use a loan interest calculator to figure out how much more you’ll pay over time.

Make Yourself a More Attractive Borrower

Once you understand where a lender is coming from, you’ll be in a position to make yourself a better potential borrower.

Before applying for financing, you should:

  • Clean up any problems in your past credit history as much as possible.
  • Make sure you have a stable employment history that gives lenders confidence.
  • Adjust your expectations and only apply for the amount of financing you absolutely need.

By thinking like a lender up front, you can put yourself in a better position to secure low interest rates and lower fees. While you’ll still have to pay back what you borrow, you can save a lot of money on simply paying for that privilege.

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