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Are you in the market for a personal loan? There are several options available, but not all are worth considering. Some lenders offer more enticing personal loan products than others. Lenders will also offer applicants different rates depending on the potential borrower’s financial situation.
To find the best personal loan lender for you, shop around and evaluate the types of loans each lender offers. You will need to consider APRs, fees and the overall experience you can expect as a customer to make an informed decision.
What is a personal loan?
A personal loan is a debt product offered by banks, credit unions and online lenders. In most instances, it can be used however you see fit to cover an expense or meet a financial goal. You’ll receive the loan proceeds in a lump-sum and pay in monthly installments over a set period.
Fixed rates on personal loans means your monthly payment remains the same over the loan term. There are also secured and unsecured personal loans – most you’ll find are the latter and don’t require collateral. But if you choose to apply for a secured personal loan, you’ll have to put up collateral to get approved.
Personal loans can vary from $1,000 to $50,000 with repayment periods between 1 and 5 years. You can also expect to pay between 7 percent and 36 percent in interest. The rate you receive depends on your creditworthiness.
Why it is important to shop around for lenders
Shop around with several lenders to find the loan that offers the features you’re looking for, including:
- Interest rate: Personal loan rates vary by lender. You can find a lender that charges you the best rate for your unique financial circumstances by shopping around. Many lenders allow you to prequalify to view estimated rates without impacting your credit. Doing this can help you find the least expensive loan.
- Loan amounts: Loan amounts also vary by lender. Comparing multiple lenders can also help you find a lender that offers a loan amount that matches your borrowing needs.
- Loan terms: Loan terms also vary by lender. Shopping around helps you find a lender that offers the terms that fit your budget. Choosing a shorter loan term can help you save on interest, but your monthly payments will be higher. By comparison, choosing a longer loan term can lower your monthly payment, but you’ll likely pay more interest in the long run.
What factors to use to evaluate lenders
When comparing personal loan options, you want to evaluate the lender’s reputation and the interest rates and fees they charge. It’s also important to consider the types of loans offered as some may not work for you.
The interest rate, or cost of borrowing, is generally determined by your credit score and loan term. Lenders tend to advertise a low-interest rate to entice customers. However, the lowest rates are typically reserved for customers with excellent credit. A good credit score could also get you a competitive interest.
If you have less-than-perfect credit, you can expect to pay more interest. So, you should search for lenders that weigh other factors, like your job history or educational background, to have a better shot at getting a personal loan with a competitive interest rate.
Does the lender charge application, prepayment or origination fees? Depending on how much you borrow, these costs could add up rather quickly, even if rolled into the loan.
To illustrate, assume you get three quotes for a $10,000 loan. The first lender charges an origination fee of 8 percent, while the other two charge 6 percent and 2 percent, respectively. You’ll pay $800, $600 or $200 in addition to principal and interest, depending on which personal loan you choose.
Many lenders offer personal loans without application or origination fees and won’t charge you a penalty if you pay off your loan early. But these aren’t the only fees to consider – examine the fee schedule to determine the amount the lender charges for late or returned payments.
Don’t let fees disqualify a certain lender, however. In some cases, the loan costs could still be less even if you have to pay some fees.
What are the hours of operation for the lenders you’re considering? Are they available by phone, email or chat? Can you visit a physical location to get assistance? These are just a few questions to ponder as you evaluate lenders to gauge if they’re easily accessible.
Types of loans offered
Do you have a specific purpose for the loan, or will you use the funds to get back on track financially? Lenders usually don’t restrict the way that funds can be used. However, personal loans are either secured (or require collateral for approval) or unsecured. They also come with a fixed rate that remains constant or a variable interest rate that changes over time, and many are marketed for a specific purpose. Common categories include:
- Bad credit loans are offered by lenders to customers with past credit challenges.
- Debt consolidation loans let you pay off multiple debts with a new loan, typically with a lower interest rate, and streamline the repayment process by making a single monthly payment.
- Emergency loans are designed to cover unexpected expenses and last-minute financial emergencies.
- Home renovation loans are used to make costly upgrades to your home without tapping into the equity you’ve built up.
Lenders might offer special perks that might interest you. For example, some lenders may offer free credit scores, credit reports or online privacy protection services. To help you manage your loan, other lenders might provide mobile apps. Some lenders can send your funds directly to your creditors if you want to consolidate your debt.
How to choose the best personal loan lender
Once you’ve evaluated lenders and narrowed down your list, rate your top picks in terms of loan costs and reputability. Refer back to the loan offers if needed to determine which offered the most competitive loan quote, and be sure to consider both the interest rate and fees they charge. Ideally, the best personal loan lender for you will be both reputable and fair with regards to loan pricing.
Ultimately, the answer of the best lender for you comes down to the lender’s reputation and the loan terms they’re offering. Although your credit score and overall financial history will determine if you qualify for a loan, you want to get quotes from several lenders and evaluate the interest rate and fees. It’s also important that the lender has a track record of providing exceptional customer support to its past and current customers.
Before you apply for a loan, run the numbers to ensure you’re making an informed decision. A higher loan origination fee doesn’t mean the lender isn’t worth considering, mainly if the interest rate is low and vice-versa. A personal loan from a lender that isn’t reputable or provides underwhelming customer service could prove to be even more costly.
With research and time, you can sort from the best personal loan lenders to find the best for your financial situation.