3 Things to Consider When Choosing a Personal Loan
By Naftali Feig
Taking out a personal loan can be an effective way of dealing with financial difficulties. A personal loan does not require collateral and generally ranges from $5,000 to $25,000. Repayment terms differ from loan to loan, but generally last up to 60 months.
Whether you’re looking to borrow cash for a big expense or to consolidate your debt, a personal loan can be a good solution for your financial problems. Here are 3 things you should consider when trying to decide which personal loan is right for you:
1. Who is the Loan Provider?
There are many different sorts of personal loan providers. The type that you choose may depend on a number of factors including your personal credit rating, as well as the individual terms and conditions offered by each institution.
A credit union is very different from a bank, which is different from a peer-to-peer lending platform, such as Upstart or Prosper. Each of these lenders will provide different types of loans, some of which may be better suited to your financial needs than others.
2. What Fees Are Involved?
What fees are involved in the loan application process? Are there prepayment fees if you are able to pay the entire loan back earlier than you expected? Make sure to go over the fine print so that you don’t find yourself surprised when you’re facing a pile of fees you were unaware existed. A good personal loan should help you get your financial status in order, without exposing you to extraneous fees that simply increase your debt.
3. What’s Your Credit Rating?
When you take out a personal loan you’re not offering collateral that the lender can seize if you don’t pay back your debt. This means that the lender is taking a bigger risk by giving you a personal loan than they would if they were giving you a secured loan, in which collateral is offered. That risk might seem even bigger if the lender knows that you have a low credit rating – and that can mean being offered a higher interest rate, or getting turned down entirely.
That’s why it’s wise to know your credit rating going into the process. Your credit rating score might also influence the type of lender you choose to approach: Peer-to-peer lending, for example, is often more relaxed when it comes to granting loans to individuals with low credit. Banks, on the other hand, might be stricter, though they also might have special personal loan offers.
Getting a personal loan can be a great way to finance a big expense or to help you consolidate your debt. While taking out a personal loan has many benefits, it’s important to be consider who your loan provider is, what the fees are, and what your credit rating is in the process of deciding which loan is right for you.
For those really new to the world of personal loans, see also: The Ultimate Personal Loan Guidebook for Beginners.
Ready to apply for a personal loan? Check out our list of the best loan providers.
About Naftali Feig
Naftali Feig holds a bachelor’s degree in finance as well as an MBA. He has over