How to Compare Personal Loans: Top 4 Tips for Borrowers
Updated: July 25, 2023
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A personal loan is a type of loan you can use in various ways. Borrowers use them for medical bills, emergency expenses, debt consolidation, payment of high-interest debts, business, investments, financing large purchases, home repairs and major life changes.
Lenders set different terms, fees and interest rates. That’s why it’s important to compare personal loans before taking one. Shopping around can help prevent certain consequences, like falling for a high-interest personal loan or one with hidden charges that would cost you a lot of money in the long run.
Flexibility, lower interest rates and easy applications make personal loans appealing to many Americans. In 2021, according to Experian, the average personal loan balance was $17,064. That's a 3.7% growth from the $16,458 average in 2020.
Look Into Interest & Fees
One of the factors affecting the cost of personal loan repayment is the interest. Depending on the loan amount and term, lenders have different annual percentage rates (APRs). Comparing interest rates on personal loans is a way for you to save money in the long run.
See Flexible Repayment Terms
Repayment terms also matter when comparing personal loans. They help determine your monthly payments and the total cost of the loan, allowing you to plan your payments based on your financial situation.
Explore the Application Process
The application process for a personal loan may vary per lender. The qualification requirements, approval time and funding also differ. When comparing personal loans, it’s important to explore the application process based on how fast you need the money. While applying for a personal loan may take some time, some lenders may offer easy applications.
Determine Funding Timeframe
The funding timeframe for a personal loan depends on the lender. This is an important factor to consider as it determines how soon you’ll get the funds. For emergencies and immediate needs, you may find lenders offering next- or same-day funding. That said, it’s still important to compare personal loan offers and terms.
Frequently Asked Questions About Personal Loans
Understanding how personal loans work and the factors involved can help you compare lenders and offers. MoneyGeek answers some frequently asked questions to assist you in making well-informed decisions.
Lenders use hard and soft credit inquiries to access and evaluate a borrower’s credit report.
A hard credit inquiry is made by accessing your credit report through a credit reporting agency when you submit a credit application and it affects your credit score.
A soft inquiry occurs when a lender accesses your credit report without it reporting to credit agencies, so your credit score is not affected.
The closing process for a personal loan generally involves signing documents and agreeing to the term, interest rates and fees.
It depends on the type of personal loan you’re getting. If it’s a secured loan, collateral is necessary. In most cases, personal loans are unsecured and collateral isn’t required.
Some borrowers feel online loan applications are risky. Generally, applying for a loan online is safe if the lender is legitimate. It’s smart to research the lender and be sure you’re using the lender's official website to prevent falling victim to fraudulent sites.
While both offer a way for individuals to borrow funds, a personal loan and a credit card differ. Personal loans provide borrowers access to a lump sum of money they can repay over a certain period with interest. Credit cards offer revolving credit and allow the borrower to access funds as long as their account is active.
Loan amount limits depend on the lender. That said, it’s essential to determine the right loan amount based on your circumstances. You can use a personal loan calculator for this.
sources
- AnnualCreditReport. "Request Your Free Credit Reports." Accessed August 4, 2022.
- Experian. "Average Credit Score Hits New High, While Debt Balances Rise." Accessed August 3, 2022.
- Federal Reserve System. "Consumer Credit - G.19." Accessed August 3, 2022.
The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.
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