Tip 3: Remember that there’s No Such Thing as a Free Loan
The old saying, There Ain’t No Such Thing As A Free Lunch applies to pool loans just as much as to meals. A loan may be advertised as free if there are no additional fees or requires no collateral. The use of this word, however, can be misleading. Even with so-called free loans, lending is still a business. Money is being made somewhere, so it’s best to find out exactly where yours is going.
Tip 4: Note All Repayment Terms and Closing Costs
When evaluating a loan option, make sure the repayment process is realistic for your timeline and budget. Check the estimate to see if the interest rate is locked, or if there is a prepayment penalty for paying off the loan early. Also look for a balloon payment—a larger, one-time payment at the end of the loan term. This may lower your earlier payments, but cause you to owe more at the end of the term.
Tip 5: Look at the Full Cost of the Loan
For financing companies, a loan is more than just the amount being borrowed. Loans also involve the interest rate, application fees, consultation fees, origination fees, and sometimes early payment fees. For this reason, you should consider more than just the principal amount you’re borrowing. Don’t let a single rate or fee carry all the weight of your decision!
However, just because a loan comes with additional fees does not necessarily mean it’s not a good deal. Sources like Viking Capital may charge a small fee in exchange for reduced interest rates. In most cases, this can actually benefit the borrowers and reduce the long-term cost of the loan. This is why it is good to calculate all potential costs of a pool loan.
Let’s say, for example, you have two different pool loan options, and are wondering which one provides the lowest costs and the greatest value over time.
- Option 1 is a loan of $50,000, at 8.99% interest for 15 years and no other fees. This amounts to a payment of $507 per month.
- Option 2 is also a loan of $50,000, but at an interest rate of 6.49% for 15 years, with a fee of $699. In spite of the added fee, the payments amount to $435/month.
By choosing Option 2, you would save $72 per month or $864 per year. In this case you save back the $699 in under 10 payments. You would also continue to save $72 per month as long as you hold the loan, saving $864 per year going forward.
In comparison, Option 1 would require you to pay off the loan completely in nine months to break even.
A long-term mindset, which considers all parts of a loan and how much you will pay during the full life of the loan, can help you make the right choice.
Tip 6: Compare the Offer with the Discussion
Make sure that the loan estimate is appropriate for what you have already discussed with the lending company. Ask them about any details that seem different from what you were expecting. This includes an interest rate that is widely different from what was quoted, an incorrect principal amount, or if the repayment term is too long or short.
Tip 7: Look at the Value of the Loan
With any loan, the borrower is looking to get a great value. This means that you consider the loan to be worth (or more than worth) the total amount you are paying for it. In some cases, the value not only includes the money being borrowed, but any additional services that may come with it.
For example, if the lender offers some kind of consultation, automatic payments, and other perks, that may be worth an added fee. If there is a prepayment penalty, that may reduce the value of the loan for you.
Find the best pool loan for your needs
The right choice in pool loans will help ensure that you are not only getting the deal that you want, but the pool that you want. Don’t wait any longer to raise your property’s value and appeal: contact Viking Capital today to get started with a pool loan that works for you.