Did you know that 22% of American adults have a personal loan? Personally, this figure seems low to me considering the benefits that personal loans can bring.
“A personal loan can meet many needs,” said Matt Lattman CMO, Personal Loans at Discover Financial Services
You can also “check your rate without impacting your credit score and see how your payments will compare to where you are today,” he added.
Additionally, markets like LendingTree
Despite the advantages of personal loans and the ease of access, it is advisable to do your due diligence when comparing personal loans. Specifically, you should look at the following seven features.
1. Minimum loan amount.
The amount of a personal loan generally ranges from $ 1,000 to $ 3,500. But, it depends on the specific lender. Usually, the biggest lenders will not go below a thousand dollars. There are even lenders who will only lend a minimum amount of $ 5,000, if not more.
If you need a smaller loan, such as less than $ 1,000, you might be better off borrowing the money from a friend or family member. If that’s not an option, go to a local bank or credit union. Or, if it’s not an emergency, you can just save the extra money.
2. Interest rate and APR.
You will be paying an interest rate based on the amount you borrow. And, this rate determines how much your total loan will cost you in the end. Personal loans generally have interest rates ranging from 10% to 28%. However, this can vary depending on factors such as inflation and the current demand for credit.
In addition to the interest rate, your loan offer may also contain an annual percentage rate or APR. The APR includes the interest rate plus loan fees. As such, it can give you a clearer picture of the true cost of the loan.
Also, APRs can vary widely depending on your credit score. Interest rates on personal loans are typically between 9% and 13% for people with excellent credit, which is defined as a score of 720 to 850 on a FICO credit report, notes ValuePenquin. Many of these customers can even benefit from lower interest rates.
Typically, the APRs on personal loans will approach or eclipse 30.00% for those with medium to low credit. When your credit score is below 580 or you have no credit history, you may not be eligible for a conventional loan.
It is also important to pay attention to the type of interest: is it fixed or variable? Fixed rates will remain constant throughout the life of the loan, while the interest rate on a variable loan can fluctuate over time or even increase.
Bonus tip: You may be eligible for rate discounts if you are a pre-existing customer or if you set up automatic payments.
Almost all loan offers will include fees – these can add up over time. Before signing a loan offer, make sure the lender doesn’t charge any fees. Below are a few fees to watch out for.
- Original fees. Lenders may charge you an upfront fee to process your loan. The origination fee can range from 1% to 8% of the loan and is usually deducted from the money you receive. As an example, you would receive $ 4,950 on a $ 5,000 personal loan if there were a 1% origination fee.
- Prepayment penalty. Prepaying your loan early may result in prepayment penalties from your lender. You should be aware of this if you plan to pay off your loan in advance or if you anticipate a windfall of money, such as an inheritance.
- Late payment fees. Check to see if your lender charges late fees if you’re having trouble making your payments on time.
- Insufficient fund charges. You should also know if you will be charged an insufficient fund fee if you do not have enough money to cover the loan payment.
The costs can really add up and cause unnecessary stress. Make sure you know what fees you’re going to pay before you start.
One of the most important advantages is that a personal loan is unsecured. In other words, you don’t have to provide collateral to secure the loan. A car loan, for example, is secured by the car, while mortgages are secured by your home.
Since it is not necessary to obtain collateral for your personal loan, the process is faster and more efficient.
5. Flexibility of loan conditions.
Your monthly payment is determined by the length of your loan repayment period. As such, longer repayment terms usually mean lower monthly payments. In contrast, you will pay more interest in the long run.
To keep interest charges low, choose a repayment schedule that allows you to make affordable monthly payments. Most loan companies require monthly installments to be paid within 30 days of receiving the loan. And, repayment terms typically vary from six months to seven years.
It’s also in your best interest to ask the lender what would happen if you had financial difficulties, such as losing your job. If this causes you to miss one payment or potentially multiple payments, will the lender offer flexible options such as extending the loan or postponing payments?
6. Access to funds.
Some personal lenders provide funds electronically the same day you are approved. Other lenders need up to 10 business days. If quick access to cash is important to your situation, be sure to select lenders that offer quick delivery.
If you want things to go as quickly as possible, gather important documents like W-2s, pay stubs, and proof of address before you apply.
7. Customer experience.
Look for a company that treats you specially. This makes it quick and easy to apply online, and if you have any questions you can easily reach them by phone 7 days a week.
In addition to exceptional customer service, you may also want to work with a lender who allows automatic payment or loan management through their website or app. And, always check that there are no complaints on the Better Business Bureau or Consumer Financial Protection Bureau websites.