Personal loans can be a valuable tool in reaching your financial goals. But what should you be looking for when shopping for personal loans?
Most banks and credit unions will have loan options with different rates and terms that can vary widely between lenders.
Here are the details to consider when comparing personal loans between lenders.
Types of Personal Loans
There are two types of personal loans you can apply for - secured and unsecured loans.
Secured Personal Loans
To get a secured personal loan, you have to provide an asset as collateral. You have several options when it comes to choosing what collateral you use.
Loans like mortgages and car loans are backed by the financed asset (the home or car you’re purchasing).
However, you can also use other assets as collateral, such as cash, stocks, precious metals, deposit funds, and more.
Since the loan is backed by collateral, it reduces the lender’s risk, which in turn can provide more flexible eligibility requirements and lower interest rates for you.
Unsecured Personal Loans
Conversely, unsecured personal loans don’t require collateral. But that also means they can have less flexibility and require a better credit history to qualify.
To qualify for an unsecured loan, the lender relies on your credit history and credit score to determine if you qualify for a loan and what rates and terms you can qualify for.
Unsecured loans usually have higher interest rates too. However, this may be worth it if you don’t want to risk your assets to get the loan.
What to Look At When Comparing Loans
APR
The annual percentage rate, or APR, is one of the most important factors to consider when comparing personal loans. The APR is the interest rate and applicable fees you’ll be paying on your loan, so the higher the APR, the higher the overall cost of the loan.
Loan Amount
Depending on the lender, you can find personal loan amounts ranging from $1,000-$100,000.
It’s important to find the right loan amount since you pay on the amount you borrow, not the amount you use.
So, if you only need a small loan amount, you don’t want to borrow more than what you need since you’ll needlessly pay money in interest on a loan amount you didn’t need.
If you need a larger loan amount, though, it’s good to find a lender who can accommodate your lending needs.
Loan Term Length
Loan terms will determine how long you will repay the loan and can affect the overall cost of the loan. Most lenders offer repayment terms ranging from a couple of months up to 7-10 years. Most personal loan terms, though, are 2-5 years.
If you have a longer repayment term, you may have lower monthly payments, but you could be spending more money overall by extending the length of time you’re paying interest.
On the other hand, shorter repayment lengths can leave you with higher monthly payments, but you can save money on interest and get out of debt quicker.
Ultimately, the loan term length that’s right for you will depend on your financial priorities and what works for your budget.
Lender Costs and Fees
The amount of the loan and the interest repayments are not the only costs associated with taking out a loan.
Different lenders may charge lending fees that can add to the cost of the loan. These include origination fees, prepayment penalties, late fees, and returned payment fees.
Origination fees can cost you anywhere from 1%-8% of the cost of your loan - but you may be able to bypass them entirely by working with lenders who don’t charge origination fees for applicants with good credit.
Fixed or Variable Rate
Most personal loans have fixed interest rates, meaning your interest rate and monthly payments will stay the same over the life of the loan. This type of interest rate offers more stability and is less risky than variable-rate loans.
Some lenders may offer variable-rate loans, which can offer an initially lower interest rate. However, you run the risk of paying significantly more if interest rates go up.
Minimum Credit Score Required
Credit scores are a vital factor when applying for a personal loan. You may need a certain credit score to qualify for a loan with a specific lender, and with a higher credit score, you may even get more favorable loan terms.
To get the best rates on personal loans, you’ll likely need a credit score of 670 or higher. A lender may not list a minimum credit score required on their website, so you can email or call ahead to save time before going in.
Apply for Your Personal Loan
Whether you need a personal loan for home repairs, medical bills, or a vacation, you are now equipped to shop for a personal loan that fits your financial needs.
At AMG Finance, we understand the importance of finding the right personal loan for your situation. Our easy application process and fast acceptance - even if you have bad credit - can get you the cash you need.
Visit a local branch to talk with our experienced and friendly team about the right loan options for you.
