A little research can save you a lot of money.
Personal loans can be one of the best ways to borrow. They give you great flexibility in how the funds are used. The interest rate is often much lower than other common types of debt, such as credit cards.
But if you are planning to apply for a personal loan, you do not want to borrow from any lender. Follow these four tips to find the perfect loan that meets your needs.
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1. Consider your financial credentials
Different types of personal loan lenders cater to different borrowers. Some only work with those who have high credit scores and have a large income. Others may even offer loans to people with low credit – albeit at higher rates.
It does no good to apply for a personal loan with a lender who does not agree with you, even if it has the most competitive rates. Check your balance and review your financial situation so you can apply with lenders who serve borrowers like you.
2. Explore all your borrowing options
Banks, credit unions, and online lenders offer personal loans, and there’s no reason not to explore all of these options in your quest for the best rates and terms. It may be easier to go to a local bank or work with a lender you already have a relationship with, but doing so could mean missing out on the best terms.
3. Get quotes from many lenders
Since rates and terms vary widely among personal loan lenders, it makes sense to shop around before committing to a financial institution. The more quotes you get, the higher your chances of finding the most expensive borrowing option, so aim for at least three to five. Since it is very easy to get quotes for personal loans online, shop in the market and see what is out there.
4. Look at the big picture
Finally, it is important not to focus only on the interest rate when searching for the best personal loan lender. Also consider the terms of the loan such as the repayment schedule, construction fees, and any upfront penalties.
A loan might have a lower interest rate, for example, but if it comes with a shorter repayment schedule, your monthly payments will be higher — although they will be less expensive over time. You may prefer to take out a loan at a higher rate but with a longer term, so that the payments fit more easily into your budget.
Also compare fixed rate loans with other fixed rate options, and variable rate loans with other variable rate options. Fixed rate loans are more predictable, and your rate will not change over the life of the loan. Variable rate loans can start at lower rates, but there are greater risks, as borrowing costs can rise.
By shopping with several lenders – including banks, credit unions, and online lenders – and keeping all loan terms in mind, you can decide which personal loan is best for your needs.