Guide

Best Personal Loans 2022 – Compare Now

Best Personal Loans 2022 - Compare Now
Written by Publishing Team

What is a personal loan?

When you take out a loan from a bank, credit union, or online lender, it is a personal loan. Usually, personal loans are distributed in a lump sum and are repaid in monthly installments.

Some types of loans are used to pay for specific purchases such as a home or a car. But the best unsecured personal loans can be used for almost any reason. For example, you can take out a personal loan to take care of emergency home repairs, finance a home renovation, pay for a wedding, or cover medical expenses. With an unsecured personal loan, the lender requires nothing more than your good credit and your written promise to repay the loan as agreed.

In exchange for using the lender’s money, you pay back the loan with interest. The higher your credit score, the lower the lender’s interest rate will be expected. Even if your credit score isn’t as high as you’d like, you may still qualify for a personal loan with bad credit. However, you are likely to pay a higher interest rate than other borrowers.

When is a personal loan a good option?

Let’s say your kitchen was designed sometime during the Truman administration, or you want to consolidate debts. A personal loan can give you the money to get things done. Most lenders don’t care how you spend the money, as long as you pay it back as promised. If you know how you are going to spend the money and have a plan to pay it off, a personal loan can be a good tool for achieving your goals.

If you need money from your personal loan quickly, look for a “Simplified Approval” loan. This means that you will not have to wait long to receive the loan funds. Since some loans are funded on the same day, if you run into a financial hurdle, a personal loan can help you get through it – even when you need cash quickly.

What should I look for in a personal loan?

You may be surprised to learn how many loan options are available. Whether you have excellent credit or you’re working to boost your credit score, the best loans on the market have these three things in common:

Low interest rate

A large loan is a loan that carries a low interest rate. The interest on the loan is calculated as a percentage of the total amount you borrow. The lower the interest rate, the more money you save in paying off the loan.

Let’s say you need to borrow $20,000 to replace the roof of your house, and you’re planning to take out a five-year loan. You are considering two options: Lender A and Lender B Below, we summarize these two fictitious lenders and how their interest rates will affect the cost of your loan. Even a small relative change can lead to big savings. Obviously, a lender that offers a lower interest rate can save you money for the life of the loan. This is money that you can use in another way, such as investing for your future.

Lender A

  • Interest rate: 5.5%
  • Monthly payment: $382
  • Total interest paid over the term of the loan: $2,921

Lender

  • Interest rate: 6.9%
  • Monthly payment: $395
  • Total interest paid over the term of the loan: $3,705

You might only pay an extra $13 per month for a loan from Lender B, but that small difference will cost you an extra $780 over the life of the loan. For help finding the best low-interest loans, check out our guide to good interest rates for personal loans.

Do you have bad credit? You are likely to pay a higher interest rate for a personal loan. If this is your case, you have two options. You can take steps to raise your score and wait until you are in a better position before applying for a loan. The second option is to get a loan now, then refinance your personal loan later (when your credit score is higher and you can get a better rate).

Loan terms that suit you

“Loan Term” is the period of time during which you have to repay the loan in full. Some people choose a longer loan period because it keeps their monthly payments low. However, the longer the term of the loan, the more interest you pay in total. Find your personal loan term, which is the shortest with the shortest possible repayment term. The best loans that fit your budget and schedule.

low fees

Another key feature of a great personal loan is that it has no fees or very low fees. Fees can be sneaky. Let’s say a lender offers you a low interest rate, but it accumulates fees. This loan may end up costing more than a loan with a slightly higher interest rate but no fees. The best personal loan lenders do not charge set-up fees and keep other expenses — such as prepayments and late fees — to a minimum.

For example, many lenders charge an origination fee to cover the cost of processing and distributing your loan. The incorporation fee ranges from 1% to 8% of the amount you borrow. Using the above scenario, if you borrow $20,000 to replace a roof, you can pay between $200 and $1,600 in construction fees only.

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