Top 5 Factors When Choosing a Personal Loan

A personal loan can provide you with a solution to your financial problems. Whether you need money for an unforeseen emergency or to pay utility, medical or credit card bills, or to pay educational expenses, a personal loan can help. But it is a big decision that requires you to consider many factors. You’ll want to consider the reason you are seeking a personal loan, your goals, your income and assets, your existing debts, and your ability to repay the loan. Additionally, there are other top factors to consider when choosing a personal loan.

Loan Qualifications

The first thing you should do when shopping for a personal loan is to take a look at your financial situation. Gather your proof of employment, your pay stubs and your bills to evaluate your debt-to-income ratio. Also, get a free credit score online. Will you qualify for the loan you are seeking? Different lenders have varying requirements. Debt-to-income should be under 36 for the best interest rates. Some loans allow for credit scores as low as 580 while others want very good credit, scores above 740.  

Interest Rate

The interest rate is what the lender will charge you for the loan. It will ultimately affect the total amount you’ll be required to pay back. If you choose an unsecured personal loan, where you don’t provide an asset as collateral for the loan, you’ll most likely have a higher interest rate. On the other hand, a secured personal loan which is backed by an asset may provide you with a lower interest rate. It does have a risk should you ever default on paying back your loan.

Depending on the type of loan you choose will affect the interest rate and the overall cost of your loan can be thousands of dollars more. When shopping for your loan, keep this in mind to avoid unnecessary payments. Ask lenders for a current list of interest rates. 

Fees

When considering a personal loan, take a look at the fine print and be aware of all fees that are or could be charged. Examples of fees include service fees, origination fees, early repayment fees, and insurance fees. Sometimes loan products offer lower interest rate loans but charge a high fee or vice versa. Just make sure to ask lenders for a list of fees, explanations of them, and what each fee includes. 

Loan Term

A longer term for your loan may sound wonderful, as your monthly payments will be lower. Please consider a shorter term loan. The longer you are paying your loan, the more expensive it is.

Customer Service

With any loan, customer service should be a deciding factor. Be sure to read up on lenders. Consider if lenders offer convenience banking including online access, repayment flexibility, and access to help when you need it. Be sure to read lender reviews so you can make an informed decision.

Luckily, shopping for a loan is pretty easy as the internet has so much information to offer. Read up on loan information, reviews and apply online.

Financial Goals

Probably the most important factor, your goals should be clear. Why are you taking out a personal loan? Will you be able to pay it off? Know what you can afford by looking at your monthly and yearly budget. 

Since paying off the personal loan should be one of your goals, you’ll want to consider if you’ll be able to make additional payments to your loan with the goal of paying off your loan ahead of time. Some lenders actually charge an early repayment fee. If there is a fee, make sure that it is not too high and that you are aware so you can make additional payments accordingly.

With so many options in personal loans, it may be difficult to find a loan that is right for you. Consider our list of factors when shopping for your loan to feel confident in your decision and succeeding in your financial goals.