How to choose the best personal lender
Personal loans are offered by banks, credit unions, and online lenders. There are several options, but not all are worth considering. More importantly, some lenders offer more enticing personal loan products than others. Lenders also offer different interest rates to applicants depending on the financial situation of the prospective borrower.
To find the best personal lender for you, you should shop around and evaluate the types of loans each lender offers. You 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 look for lenders
It’s important to shop around at multiple lenders to make sure you’re getting the best personal loan deal. If you decide to borrow with the first lender you find, you could get a significantly higher interest rate than you would qualify for with another lender. You may end up with a monthly payment that is beyond your budget, and you could be paying hundreds or thousands of dollars more in interest over the life of the loan.
Many lenders allow you to prequalify online in minutes. You can view credit estimates without affecting your credit score and compare them to the other personal loans you are considering. This way you can find the cheapest loan.
What factors should be used to evaluate lenders?
When comparing personal loan options, you want to evaluate the lender’s reputation along with the interest rates and fees they charge. It is also important to consider the type of loans on offer as some may not be right for you.
The interest rate or cost of borrowing is generally determined by your credit rating and the length 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 ratings. A good credit score could also give you a competitive interest.
If you have less than perfect credit, you can expect to pay more interest. So, you should look for lenders who weigh other factors like your work history or educational background to have a better chance of getting a personal loan with a competitive interest rate.
Does the lender charge application, setup, or prepayment fees? Depending on how much you’re borrowing, these costs can add up pretty quickly, even if they’re included in the loan.
To illustrate, let’s say you receive three offers for a $10,000 loan. The first lender charges an 8 percent processing fee, while the other two charge 6 percent and 2 percent, respectively. You pay $800, $600, or $200 in addition to principal and interest, depending on which personal loan you choose.
Many lenders offer personal loans with no application or closing fees and will not charge you if you prepay your loan. But those aren’t the only fees to consider — check the fee table to determine the amount the lender will charge for late or returned payments.
However, don’t let fees disqualify a particular lender. In some cases, even if you have to pay some fees, the cost of borrowing can still be less.
What are the hours of operation for the lenders you are considering? Can they be reached by phone, email or chat? Can you go to a physical location for help? These are just a few questions to think about when evaluating lenders to see if they are easily accessible.
Types of Loans Offered
Do you have a specific purpose for the loan, or will you use the funds to get back on track financially? Lenders typically do not restrict how funds can be used. However, personal loans are either secured (or require collateral for approval) or unsecured. They also have a fixed rate that stays constant or a variable rate that changes over time, and many are marketed for a specific purpose. Common categories include:
- Loans with bad credit are offered by lenders to customers with previous credit challenges
- Debt Consolidation Loan You can pay off multiple debts with a new loan, usually at a lower interest rate, and streamline the repayment process by making a single monthly payment
- emergency loan are designed to cover unexpected expenses and last-minute financial emergencies
- Loan for renovation works are used to make costly upgrades to your home without draining the equity you’ve built up
How to choose the best lender for you
Ultimately, the answer to the best lender for you depends on the lender’s reputation and the loan terms they offer. Although your credit score and overall financial history will determine whether you qualify for a loan, you’ll want to get quotes from multiple lenders and evaluate the interest rate and fees. It is also important that the lender has a track record of providing exceptional customer care to their past and current clients.
Before you apply for a loan, run through the numbers to ensure you make an informed decision. A higher lending fee does not mean that the lender is out of the question, especially if the interest rate is low and vice versa. A personal loan from a lender that is not reputable or offers poor customer service could prove even more costly.
With a little research and time, you can choose among the top personal loan lenders the one that best suits your situation.