By Did you know that 22% of US adults hold a personal loan? Personally, I think that figure is low given the benefits that personal loans can provide.
“A Personal Loan can help with many needs that arise,” stated Matt Lattman, CMO, Personal Loans at Discover Financial Services DFS0.0%. “Many of our customers come to us to lower their monthly payment, pay down debt faster, or simplify their payments and appreciate the predictable monthly payments with a fixed end date that comes along with a personal loan.”
Alternatively, you can “check your rate without any impact on your credit score and see how your payments will compare to where you are today,” according to him.
Furthermore, markets like LendingTree TREE-2.3% and Upstart UPST+2.3% have made it simpler than ever to apply and qualify for flexible lending choices. There are also other ways to finance large expenses, such as home improvements and weddings, through internet lenders like LightStream and Discover Personal Loan. Indeed, according to Finder, the number of people borrowing money online has increased by 55.87% this year compared to the previous year. In order to survive a closed branch environment, traditional banks have begun to include online lending services on their websites and applications.
Despite the benefits of personal loans and their ease of availability, it is recommended that you conduct thorough research while comparing them. Specifically, you should consider the seven features listed below.
1. Minimum loan amount.
Personal loans typically range from $1,000 to $3,500. However, this depends on the lender. Generally, the largest lenders will not lend less than $1,000. Some lenders will only make loans of $5,000 or more.
If you need a smaller loan, say less than $1,000, you could be better off borrowing it from a friend or family member. If that is not an option, go to your local bank or credit union. If it isn’t an emergency, you may simply save the extra money.
2. Interest rate and APR.
You will pay an interest rate based on the amount you borrow. Furthermore, this rate influences how much your overall loan will cost in the end. Personal loans often carry interest rates ranging from 10% to 28%. However, this can change depending on inflation and current credit demand.
In addition to the interest rate, your loan offer may include an annual percentage rate (APR). The APR comprises both the interest rate and loan fees. As a result, you’ll have a better idea of how much the loan actually costs.
Additionally, APRs might vary greatly depending on your credit score. According to ValuePenquin, personal loan interest rates normally range between 9% and 13% for persons with excellent credit, which is defined as a FICO credit score of 720 to 850. Many of these consumers may even be eligible for lower interest rates.
APRs on personal loans typically approach or exceed 30.00% for those with moderate to poor credit. If your credit score is below 580 or you have no credit history, you may be ineligible for a traditional loan.
It’s also vital to consider the type of interest: Is it fixed or variable? Fixed rates remain stable during the loan term, but variable rates may fluctuate over time, possibly increasing.
Bonus tip: If you’re a repeat client or have automatic payments set up, you may be eligible for rate cuts.
3. Fees.
Almost all loan offers will have fees, which can build up over time. Before signing any loan offer, ensure that the lender does not levy any costs. Here are some fees to keep an eye out for.
- The origination cost. Lenders may impose an upfront fee for processing your loan. An origination charge can range from 1% to 8% of the loan amount and is usually taken from the money you receive. If a 1% origination fee were applied to a $5,000 personal loan, you would receive $4,950.
- A prepayment penalty. Paying up your loan early may result in prepayment penalties from your lender. You should be aware of this if you intend to pay off your loan early or anticipate a cash inflow, such as an inheritance.
- Late payment fee. If you are having problems making payments on time, check to see if your lender charges a late fee.
- Insufficient funds fee. You should also enquire whether you will be charged an insufficient funds fee if you do not have enough cash to cover the loan payment.
Fees can quickly mount up and cause unnecessary worry. Before you begin, make sure you understand the fees you will be paying.
4. Collateral.
The fact that a personal loan is unsecured is one of its most significant advantages. In other words, you do not need to provide any collateral to obtain the loan. A car loan, for example, is secured by the car, whereas a mortgage is backed by your home.
The procedure of obtaining a personal loan is faster and more efficient because no collateral is required.
5. Flexibility of loan terms.
Your monthly payment is decided by the duration of your loan payback period. Longer repayment durations often result in cheaper monthly payments. On the negative side, you will end up paying more in interest over time.
To keep interest charges low, select a repayment schedule that permits you to make manageable monthly payments. Most loan providers require monthly payments be made within 30 days of receiving the loan. The payback lengths commonly range from six months to seven years.
It’s also a good idea to question the lender about what would happen if you encountered financial issues, such as losing your job. If you miss a payment, or possibly multiple payments, would the lender provide you with flexible options such as extending the loan or postponing payments?
6. Access to funds.
Some personal loan companies send funds electronically the same day you’re authorised. Other lenders require up to ten business days. If you need money quickly, choose lenders who offer swift delivery.
If you want things to progress as swiftly as possible, gather the necessary documents, such as W-2s, pay stubs, and proof of address, before applying.
7. Customer experience.
Look for a company that makes you feel special. This makes it simple to apply online immediately, and if you have any issues, you can easily contact them by phone seven days a week.
In addition to excellent customer service, you may wish to work with a lender that offers autopay and loan administration through their website or app. Also, always check the Better Business Bureau and Consumer Financial Protection Bureau websites to see if there are any complaints.
