How to Compare Personal Loans
Aug 30, 2022
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A personal loan can allow you to borrow a lump sum of money upfront and cover various expenses. You’ll pay it back over time over an agreed upon term, which may be anywhere from a few months to a few years. To find out how much you’ll pay in total and/or each month, you can use a loan payment calculator.If you need fast cash, this financial product is certainly worth considering. Since there are countless personal loans out there, it’s in your interest to compare all your options. This way you can make an informed decision for your unique situation. Here are some additional tips to help you compare personal loans.
1. Get Several Quotes
Banks, credit unions, and online lenders all offer personal loans. Interest rates, repayment terms, fees, and perks can vary greatly, making it a good idea to request multiple quotes. If possible, ask for quotes from at least three lenders. This way you can compare what’s available to you and choose the best fit.
2. Prequalify Whenever Possible
When you apply for a personal loan, lenders will often perform a hard credit inquiry, which can hurt your credit temporarily. Fortunately, many lenders offer prequalification tools you can use to check potential loan offers without any impact to your credit score.
All you have to do is authorize a “soft” inquiry of your credit report and provide some basic information like your name, Social Security number, and the amount of money you’d like to borrow. If you take advantage of prequalification opportunities, you can compare personal loans and protect your credit at the same time.
3. Compare Apples to Apples
As you compare personal loan offers from several lenders, make sure the terms are similar, not just the monthly payment. For example, while one lender might offer lower monthly payments, their repayment terms will be longer and can cost you more in interest in the long run.
You should also look at the types of interest rates lenders are offering. With fixed-rate loans, the rate will stay the same over time. Variable rates, however, go up and down based on the market. While a variable rate might seem lower, it’s not necessarily the better deal. It may eventually increase to a much higher rate.
4. Consider All the Costs
Personal loans can come with interest and various fees, all of which can impact the total cost of borrowing. That’s why you should compare the annual percentage rate (APR) of potential options, not just the interest rate. The APR will help you better understand the annualized cost of borrowing. If you solely focus on the interest rate, you won’t understand the true cost of borrowing. Just be aware that two loans with the same APR can have very different total costs depending on the term and loan amount.
5. Don’t Ignore the Fine Print
It can be easy to overlook the fine print on a personal loan offer but doing so can cost you. The fine print might include information about prepayment penalties and other fees. It may also outline details about collateral and what happens if you default on your loan. If you take the time to carefully read the fine print, you’ll understand all the risks of your personal loan options and find it easier to make a good decision.
Bottom Line
It will take some time and effort to compare personal loans. Doing so, however, can ensure you’re an informed shopper and guide you toward the best product for your particular budget and needs. Best of luck in your search for a personal loan!
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