How to Compare Personal Loans From Multiple Lenders

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Reviewed byAlvin Yam, CFP
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Reviewed byAlvin Yam, CFP
Edited byCasie McCoskey
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Updated: May 23, 2024

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A personal loan is a form of credit that can be used for a wide range of purposes, from consolidating debt to funding large expenses like home renovations or a wedding. They also often come with fixed interest rates, regular monthly payments and a set repayment schedule, making budgeting more straightforward and predictable.

However, personal loans can vary significantly between lenders in terms of interest rates, fees, loan amounts and repayment terms. It pays to shop around and compare different personal loan offers to understand the full range of available products and choose one that best fits your financial needs and circumstances.

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Factors to Consider When Comparing Personal Loans

Lenders offer personal loans with varying terms, fees and interest rates. When shopping around, focus on these factors to avoid costly issues like high interest rates or hidden charges that can lead to financial strain over time.

Interest Rates and APRs

The interest rate on a personal loan is the percentage of the loan amount the lender charges as a fee for borrowing money. According to Federal Reserve data, the average interest rate for a 24-month personal loan stood at 12.49% as of February 2024. However, your actual rate may vary based on factors like your credit score and the loan term length.

Interest rates on personal loans can be either fixed or variable. A fixed interest rate remains constant throughout the loan term, ensuring predictable monthly payments. A variable interest rate can fluctuate over time based on changes in an underlying benchmark rate, which could affect your payment amounts.

The annual percentage rate (APR) provides a more comprehensive look at the total cost of borrowing. It includes the interest cost and other fees associated with a personal loan, like origination fees and closing costs.

The APR can help you finalize your decision. For instance, maybe Lender A doesn’t charge an origination fee. But Lender B has lower interest rates. Comparing the respective APRs can help you calculate the better option, as it gives you an idea of how combined interest and fees impact the total cost of each loan.

Loan Amounts

Lenders typically offer a range of loan amounts, which can vary widely from $1,000 to around $50,000. The amount you qualify for depends on several factors, including your credit score, income, debt-to-income ratio and sometimes the intended use of the loan. For instance, a lender might be willing to offer a larger amount for home improvement projects, which are seen as investments in property value, compared to consolidating credit card debt.

Choosing the appropriate loan amount requires balancing your current financial needs and ensuring the repayment amount fits comfortably within your budget. Borrowing more than you need can lead to unnecessary debt and additional interest costs, and borrowing too little might not fully cover your financial needs.

Consider using a personal loan calculator to estimate monthly payments for various loan amounts. This can help you determine how different loan amounts impact your monthly budget, allowing you to make an informed decision tailored to your financial circumstances.

Repayment Terms

A lender’s repayment terms define the duration a borrower is expected to repay the loan in full, including any interest and fees. The length of these terms can vary significantly depending on the lender and the amount borrowed, typically ranging from 12 to 60 months.

With a shorter repayment term, you pay less in total interest because the money is borrowed for a shorter period. This can lead to significant savings on the overall cost of the loan. However, shorter terms also mean higher monthly payments, which can strain your budget if not planned carefully. As such, they’re ideal for borrowers who have a stable and sufficient income to handle larger monthly payments and wish to clear their debt quickly.

A longer repayment term reduces the monthly payment amount, making it more manageable within a tight budget. That said, more interest accumulates over a longer period, increasing the total cost of the loan. Extended repayment terms are suitable for those who need lower monthly payments to fit their loan into their existing financial obligations and are comfortable paying more in total interest for the added flexibility.

Additional Fees

Personal loan fees vary by lender and can significantly impact the total amount you end up paying. Below is a breakdown of common fees associated with personal loans:

  • Origination Fee: The origination fee is charged by some lenders to cover the cost of processing a new loan. It is typically a percentage of the loan amount, ranging from 1% to 8%. The fee can either be deducted from the loan proceeds or added to the loan balance, affecting the total amount you receive or owe.

  • Late Fee: A late fee may apply if you make a loan payment past the due date. This is usually a fixed amount or a percentage of the overdue payment. Make sure to understand the grace period and late fee structure to avoid extra charges.

  • Prepayment Penalty: Some lenders charge a penalty for paying off your loan early. This fee compensates the lender for the interest they lose if the loan is settled before the term ends. Not all loans have this penalty, so check if your loan agreement includes one.

  • Non-Sufficient Funds Fee (NSF): If you make a payment but do not have enough funds in your account to cover it, you’ll likely incur an NSF fee. This is charged each time a payment is returned due to insufficient funds, and the fee amount varies by lender.

By familiarizing yourself with a lender's fees, you can better anticipate the actual cost of your loan. This will give you an edge in budgeting and setting expectations for the duration of your loan terms.

Special Features

Some lenders offer special features that can enhance the flexibility of the loan and potentially reduce costs. Here are some notable features to look out for when comparing personal loans:

  • Interest Rate Discounts: Some lenders offer a reduction in interest rates if you meet certain criteria. For example, enrolling in automatic payments from a checking account often qualifies you for an interest rate discount, typically around 0.25% to 0.50%. This can lead to substantial savings over the life of the loan.

  • Direct Payment to Creditors: If you are taking out a loan primarily for debt consolidation, some lenders will send the borrowed funds directly to your other creditors. This convenient feature ensures that the funds are used expressly to pay off outstanding debts, simplifying the process and helping you manage your finances more efficiently.

  • Option to Add a Co-Signer or Co-Borrower: Adding a co-signer or co-borrower who has better credit or a higher income can improve your chances of loan approval and may secure a lower interest rate. This is particularly beneficial if your credit history is not strong or your income is lower than what a lender typically requires.

  • Loan Payment Relief Programs: Some lenders offer flexibility in the event of financial hardships, such as job loss or medical emergencies. These programs may allow you to defer payments temporarily, reduce the payment amount or extend the loan term under certain conditions.

These unique features may prove indispensable to your loan needs, depending on your circumstances. Look out for these types of promotions from lenders and consider how they may bolster your loan terms.

Funding Times

The speed with which you can access borrowed funds varies significantly among lenders. Some offer fast approvals with same-day funding, which is particularly beneficial if you require immediate cash for emergencies like medical bills or unexpected home repairs. This rapid processing allows you to address your financial needs promptly without unnecessary stress.

Conversely, other lenders may take several days to a week to complete the loan process and disburse the funds. Ensuring the lender's funding timeline aligns with your specific circumstances will help you manage your finances more effectively and avoid potential disruptions.

Eligibility Requirements

Eligibility criteria for personal loans vary significantly among lenders, influencing your choice of where to apply. Some might require specific minimum credit scores or income levels, while others might be more flexible but offer different terms based on these factors.

Certain lenders cater specifically to borrowers with excellent credit, offering better terms and lower rates. In contrast, others might specialize in helping those with less-than-perfect credit find loans that suit their needs.

Understanding these requirements before applying can save you time and help you find a loan that meets your financial needs and is likely to be approved.

What to Do Before Applying for a Personal Loan

Once you’ve chosen a lender, make sure you’re well-prepared before pursuing an application to improve your chances of approval and securing the best terms for your situation.

1
Check Your Credit Score

You can check your credit score for free through the major credit bureaus or via services offered by some credit card providers and financial websites. Once you know your score, you have the opportunity to improve it by correcting any errors or addressing outstanding debts, which can help you secure better loan terms.

2
Determine How Much You Need To Borrow

Before applying, assess the amount you need to borrow to cover your needs without overextending yourself. This helps prevent borrowing more than necessary, which can lead to unnecessary debt and higher interest payments. Knowing your exact needs can also streamline the application process and help you focus on finding the best loan options for that amount.

3
Consider Using Collateral

Using collateral to secure a personal loan can improve your chances of approval and potentially get you a lower interest rate. Collateral can include assets like a car, home or savings accounts, which the lender can claim if you don't repay your loan according to the terms.

4
Calculate Your Monthly Payments

Calculate your monthly payments to ensure you can afford the loan without overextending yourself financially. You can use online loan calculators to input the loan amount, term and interest rate to see your prospective monthly payment.

5
Explore Alternatives

Before committing to a personal loan, explore other financial options that might be available, such as personal lines of credit, credit cards or borrowing from friends and family. Sometimes, these alternatives might offer more favorable terms or flexibility based on your specific financial needs.

FAQ About Comparing Personal Loans

We answered some frequently asked questions about personal loans to assist you in making well-informed financial choices.

What can a personal loan be used for?
How does applying for a personal loan affect your credit score?
What is the difference between a personal loan and a credit card?
Can you refinance a personal loan?
Can you pay off your personal loan early?
What happens if you miss a payment on a personal loan?
Can you get a personal loan if you're self-employed?
Is it possible to get a personal loan with bad credit?
sources
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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.

Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, lender or other entity. Learn more about our editorial policies and expert editorial team.