Personal loans are offered by banks, credit unions and online lenders. Several options are available, but not all are worth considering. More importantly, some lenders offer more attractive personal loan products than others. Lenders will also offer applicants different rates depending on the financial situation of the potential borrower.
To find the best personal lender for you, shop around and evaluate the types of loans offered by each lender. You’ll need to consider APRs, fees, and the overall experience you can expect as a customer to make an informed decision.
Why it’s important to shop around for lenders
Shop around with several lenders to find the loan that offers the features you are 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 situation by shopping around. Many lenders allow you to prequalify to see estimated rates without affecting your credit. This can help you find the cheapest 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 conditions: Loan terms also vary by lender. Shopping around helps you find a lender that offers terms that fit your budget. Choosing a shorter loan term can help you save on interest, but your monthly payments will be higher. In comparison, choosing a longer loan term may 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 assess the reputation of the lender as well as the interest rates and fees they charge. It is also important to consider the types of loans offered, as some may not be suitable for you.
The interest rate, or cost of borrowing, is generally determined by your credit score and the term of the loan. Lenders tend to advertise a low interest rate to attract customers. However, the lowest rates are usually reserved for customers with excellent credit. A good credit score could also get you competitive interest.
If your credit isn’t perfect, you can expect to pay more interest. You should therefore look for lenders who consider other factors, such as your work history or education, to have a better chance of securing a personal loan with a competitive interest rate.
Does the lender charge an application, prepayment, or origination fee? Depending on how much you borrow, these costs can add up quite quickly, even though they are built into the loan.
To illustrate, suppose you get three quotes for a $10,000 loan. The first lender charges an origination fee of 8%, while the other two charge 6% and 2% respectively. You’ll pay $800, $600, or $200 plus principal and interest, depending on the personal loan you choose.
Many lenders offer personal loans with no application or set-up fees and won’t charge you a penalty if you repay your loan early. But these aren’t the only fees to consider – review the fee schedule to determine how much the lender charges for late or returned payments.
Don’t let fees disqualify a certain lender, though. In some cases, the loan fees could be lower even if you have to pay a fee.
What are the opening hours of the lenders you are considering? Are they available by phone, email or chat? Can you visit a physical location for assistance? These are just a few questions to think about when evaluating lenders to determine if they are easily accessible.
Types of loans offered
Do you have a specific goal for the loan or will you use the funds to get back on track financially? Lenders generally do not limit how 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 stays constant or a variable interest rate that changes over time, and many are marketed for a specific purpose. Common categories include:
Loans for bad credit are offered by lenders to customers with credit problems in the past.
Debt consolidation loans allow you to pay off multiple debts with one new loan, usually with a lower interest rate, and streamline the repayment process by making one monthly payment.
Emergency loans are designed to cover unexpected expenses and last minute financial emergencies.
Home improvement loans are used to make expensive improvements to your home without tapping into the equity you have accumulated.
Lenders may offer special perks that may interest you. For example, some lenders may offer free credit scores, credit reports, or online privacy services. To help you manage your loan, other lenders may provide mobile apps. Some lenders can send your funds directly to your creditors if you want to consolidate your debt.
At the end of the line
Ultimately, the answer of the best lender for you comes down to the reputation of the lender and the loan terms they offer. Although your credit score and general financial history determine whether you qualify for a loan, you want to get quotes from several lenders and assess the interest rate and fees. It is also important that the lender has a track record of providing exceptional customer support to past and current customers.
Before applying for a loan, analyze the numbers to make sure you are making an informed decision. Higher loan origination fees do not mean the lender is not worth considering, especially if the interest rate is low and vice versa. A personal loan from a lender that is not reputable or offers disappointing customer service could be even more expensive.
With research and time, you can sort through the best personal lenders to find the one that best suits your financial situation.