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Finding the best personal loan for you will take a little bit of work, but it’s worth the effort to get the best available offer from a reputable lender.
Lots of financial institutions, like credit unions, online lenders and peer-to-peer lenders, offer personal loans. But loan terms and conditions — which ultimately affect the total amount that you’ll have to pay back — can vary from lender to lender. That’s why it’s important to do your homework before you apply.
A 2018 U.S. News survey found that more than 21% of respondents didn’t research their loan options at all before applying for a personal loan, and almost 34% spent only two hours or less reviewing their options.
Skipping over this important part of the process can be a costly mistake, because many lenders can give you an idea of the interest rate you’d qualify for and the fees you’d pay before you apply. Researching your options allows you to compare multiple offers and choose the personal loan that’s right for you.
With so many lenders and loan options to choose from, it can be difficult to know where to start. The good news is there are a variety of resources out there to help you with your search.
Where to start when shopping for a personal loan
Taking out a personal loan is one way to consolidate high-interest credit card debt or get cash for one-time expenses. But that doesn’t mean you should take the first offer you get. It’s important to compare offers from multiple lenders before deciding which one is right for you. Here are a few resources to help you get started.
Referrals can be a great way to find lenders that offer personal loans. Plus, working with a lender that’s been referred to you by someone you trust can help you feel more comfortable with the process.
But that doesn’t mean you should necessarily work with the first lender you contact. Take some time to research multiple lenders to ensure you’re getting the best rate, terms and fee structure for you.
Your current bank or lender
If you already have a relationship with a lender, Todd Ferrara, consumer sales strategy and small-business manager at Bryn Mawr Trust, recommends contacting them to see what types of loans they offer.
The internet makes it easy to research lenders and the personal-loan products they offer. But it’s up to you to decide what information to trust.
If you’re unfamiliar with a lender, “you owe it to yourself to do some due diligence to see what kinds of reviews [about the company] are out there,” Ferrara says.
Also, consider using multiple online sources for information instead of relying on just one site to make your decision. Here are a few you may want to check out.
- Company websites — Many companies have websites where you’ll find details about loan products offered and their rates, terms, fees and more. And you’ll typically find the lender’s contact info online as well, so you can reach out if you need more info.
- Trusted online sources — Sites that are dedicated to educating consumers about financial products and services often provide information about loan products and compare offers from popular lenders. This could be a time-saver, because you can find information about multiple companies without visiting each lender’s website individually.
- Online reviews — You can find out what customers are saying about lenders by reading online reviews. Websites like Credit Karma, Trustpilot and others publish reviews from customers who are willing to share their experiences. Just remember that no matter what a customer review says (good or bad), there’s no guarantee you’ll have a similar experience with the lender.
- Better Business Bureau — While getting the best deal you can is important, working with a trustworthy institution is just as important. One resource that can help you research lenders is the Better Business Bureau, a nonprofit dedicated to helping people find reputable businesses to do business with. Through their website, you can search for companies to find out what BBB rating they’ve earned and whether they’re accredited by the Better Business Bureau. You can also read customer reviews and complaints and check out scam alerts that consumers have reported to the BBB.
- Consumer Financial Protection Bureau — The CFPB is a U.S. government agency created to ensure consumers are treated fairly by financial services companies. The site contains a searchable database where consumers can look for complaints filed against companies.
What factors are important when shopping for a personal loan?
Getting a loan is a big decision that can affect your finances for years. So while you’re researching various lenders, it’s important to take note of the loan products and terms they offer so that you really understand your options.
Here are some personal-loan criteria to consider.
Your interest rate is typically the factor that will have the biggest influence on how much you pay over the life of a loan, so the goal is to get the best rate possible. Rates vary based on the lender, your creditworthiness and a host of other factors. And the range of interest rates for personal loans is broad
— about 5% to 36% APR.What is APR and why is it important?
Typically, borrowers with good credit scores qualify for lower rates than borrowers with poor credit scores. But different lenders have different criteria for approving borrowers, so it makes sense to shop around.
A tip: If you plan to use a personal loan for debt consolidation, make sure the rate is lower than what you’re currently paying on the debt you want to consolidate. Otherwise, it may not make sense to get the loan.
Another factor that impacts the total cost of your loan are the fees that come with it. Some loans don’t have fees, while others may have one or more of the following:
- Origination fees — Some lenders charge a fee for processing your loan application and disbursing the funds. With major lenders, they typically range from 1% to 8% or more of the loan amount.
- Processing fees — Your lender may charge you a fee for processing your payment each month.
- Prepayment penalties — Although paying off your loan early may seem like a good way to save on interest charges, it could end up costing you. Some lenders may charge a prepayment fee if you pay off your balance before the end of the loan term.
- Late-payment fees — Although late fees aren’t unique to personal loans, you’ll want to know if your lender charges them and how much they are.
Loan amounts and repayment terms
Personal loans often range from around $1,500 to $100,000, with repayment terms of 12 to 84 months, depending on the lender. If you choose a loan with a shorter term, you’ll typically pay less interest overall, but your monthly loan payments will probably be higher.
On the flip side, if you extend the loan term, your payments may be lower, but you’ll likely pay more in interest over the life of the loan.
How quickly you need money may affect whom you decide to do business with. Some lenders can turn around loan applications and have your money deposited into your account within one or two business days, while others may take as long as five to 10 business days or more.
Some lenders offer rate discounts if you sign up to have your loan payment automatically deducted from your bank account each month.
If you get an offer from a lender that offers this option, be sure to compare the discounted rate with the other quotes you receive so you can accurately compare offers.
Lenders want to ensure that you’ll be able to repay your loan on time. Before they approve your loan application, they review several factors to determine your credit risk. Here are a few they may consider.
- Credit scores and reports — Your credit scores and reports help lenders predict how likely you are to repay a debt.
- Income — Lenders may want to check your income to help determine if you make enough money to repay the loan.
- Debt-to-income ratio — This ratio compares your monthly debt payments to your gross monthly income. Lenders use it to help determine whether you have too much debt to get another loan. The lower your debt-to-income ratio, the better.
The minimum thresholds for loan-eligibility requirements vary from lender to lender. If you’re not approved by one company, that doesn’t necessarily mean you won’t be able to get a loan with a different company.
But if you do have difficulty qualifying for an unsecured personal loan, consider applying for a secured personal loan. Secured loans require collateral, like cash from a savings account or real estate, and so they may be easier to get.
Choosing a lender
It’s important to work with a lender that has a product to fit your needs. But the details of the loan shouldn’t be the only criteria you use when selecting a lender. Here are a few more things you may want to consider.
- Location — If you like banking in person and want to be able to visit a local branch to speak with someone about your loan, consider choosing a lender with locations near your home or work.
- Features — If certain features, like being able to access your account online or through a mobile app, are important to you, you may want to select a lender that offers those features.
- Reputation — Lenders earn good reputations for a reason. It may be worth doing business with a lender that’s known for its great customer service and ethical business practices, even if it means paying a slightly higher rate.
Ultimately, the lender that’s right for you should have rates you can afford, terms to fit your budget and a service level you’re comfortable with. While there’s no “right” lender for everyone, there are some types of lenders to avoid.
Here are several red flags to watch out for when evaluating personal-loan lenders. These can alert you to potential scams and illegitimate offers.
- They’re not registered in your state. Institutions that lend money to consumers must be registered in the states where they do business. You can find out if a lender is registered in your state by calling your state attorney general’s office or your state’s bank regulator.
- They make you an offer over the phone. Lenders doing business in the U.S. aren’t allowed to guarantee you a loan over the phone and ask you to pay before delivering.
- They offer guaranteed approval. Checking a potential borrower’s credit history is a standard lending practice, because financial institutions want to know how likely you are to repay a debt. If a company says you can get approved for a personal loan no matter how bad or nonexistent your credit is, beware. It’s probably not a legitimate offer.
- They request that you wire money or pay a specific person. If a lender asks you to wire money to a specific person, that’s a red flag.
Finding a personal loan you can afford from a lender you trust requires you to do your homework. Fortunately, you can tap into your personal network, speak with your existing lender, and access a variety of websites to get information to help you make an informed decision.
Be sure you personally review all the terms and conditions of any loan before you sign the loan documents. You’ll likely be making monthly payments on your loan for years, so it’s essential to understand the fine print.
“Don’t take someone’s word for it,” Ferrara says. “Really read what you’re signing before you sign it.”