Getting a loan is a big decision that can affect your finances for years. If you are looking around for a loan, then you need to know how to evaluate a loan offer. It is important to get different offers and compare them to remember your best possible option. While you may consider borrowing money online at any time, the risks of being scammed are also very high. So, while you are researching various lenders, it is vital to take note of the loan products and terms they offer so that you really understand your options.


Critical Factors in loan evaluation

Most loan lenders like GM Creditz offer contracts that vary in terms of the loan. Therefore, loan consultants advise that before consideration on loan, read the terms of the loan and comprehend them.  Below are some key elements which you should consider while evaluating your loan.


Your interest rate is typically the factor that will have the most significant influence on how much you pay over the life of a loan. Therefore, make sure to be able to get a better offer in terms of the rates that are prevailing. Interest rates always vary depending on your creditworthiness, your income, and available securities. These rates will, therefore, help you to gauge how much of the loan amount you will be owing at the maturity.

Effective APR

This is the total accrued cost chargeable to a borrower while repaying a loan. These charges include deductible fees such as origination fees and penalties and is expressed as a percentage. APR is an efficient way of calculating how much you will end up paying out while financing your loan obligation in a year. Comparing the APRs of different scenarios of rates and monthly payments can reveal to your which way will cost you more.


This is the period you will be afforded by the lender to have wholly repaid your loan. This period is agreed upon by you and the lender when discussing the terms of the loan. Generally, most loans mature between 5-8 years, but some have shorter or longer periods depending on their flexibility and conditions. A shorter repayment period attracts lesser interest on your loan since interests are calculated on an annual basis.

Monthly payments

This is part of the amount that was agreed up on to repay the lender every month in settlement of your debt. Part of this payment usually goes to settling the principal and the rest to the interest. In case any fees accrued over the month, then the payment will be divided into three to meet all these costs.

Loans with fixed interest rates usually come with higher monthly remittances than those with varying rates. However, the amount you are expected to pay will not vary. This gives you some stability since you are aware of the debt you need to repay, and you can plan for flexible repayment, which does not stretch your finances.

Amount of loan

The loan amount is the gross amount of financing you applied from a lender, in normal instances, you receive this amount as applied for then it attracts interests, so you will be required to repay more due to the charges. However, in some cases, some types of loans attract origination and processing fees, which implies that you will receive a slightly lower amount of money after these changes have been effected.


Depending on the type of loan you are shopping for, some loans have provisions for beforehand or after charges on the loan amount, as illustrated below.

  1. Origination fees – this is popular with personal loans, it is charged for processing, and sometimes it acts as security, for example, with Christmas loans.
  2. Processing fees – processing fees are charged monthly for the processing of a loan.
  3. Prepayment fees – some interests on loans are fixed, therefore when you finish payment of the loan before the maturity, the lender may charge you extra on loan for paying earlier than agreed.
  4. Late-payment fees —late payment fees apply to almost every kind of loan out there, although the rates do vary from one lender to another.


Lenders contract, which contains terms of loans, includes this information about rates and charges. You should be able to spot this out quickly since it differs from the usual rates that are applied. In case you are still not sure about the terms, discuss them further with your lender.


Evaluation of Loan Offers

While evaluating a loan, you should put into consideration the factors highlighted above and ask yourself the following set of questions.

  • If the amount you are applying for will be sufficient to cover the purpose, you are taking it out for
  • Can the loan be able to get you to a position of offsetting and meeting your goals?
  • Are you able to make the monthly payments without strain?
  • Do you prefer to pay less monthly payments or have lower interest rates charged on your loan?


When you want to maintain low costs

In case all the loan types consist of similar repayment terms and value, an individual can make straight comparison of the overall cost. It is prudent to examine the APR rather than the rates of interest since fees are included in the total APR. In general, the loan containing a lower APR should be inexpensive suppose other factors are held constant.


When you need to squeeze down that monthly payment

In some cases, loans that have higher chargeable fees and APR might be easier to pay back than those with lower fees and APR, so depending on your cash flow muscle, you may prefer a higher interest to pay fewer monthly deductions.


The Bottom Line

In addition to the elements discussed above, there are other factors that you should consider in evaluating that loan offer. Including your level of eligibility, knowledge of your lender, your payment capabilities, etc. Hence, now you are well equipped to go and get into your loan evaluation. Remember to read through the terms and conditions of the loan.