Are you looking to take out a personal loan?
You’re not alone. In the United States, over 38 million people currently have an outstanding personal loan.
It’s easy to see why personal loans are a popular credit product in the country. Most lenders don’t place a restriction on how you use the money and getting approved isn’t a big challenge, as long as you can prove that you can repay it.
However, this doesn’t mean you should secure just about any personal loan. When you’re looking to borrow, it’s important to get the best personal loan available.
How do you do this?
Continue reading for a list of important things to consider.
The Interest Rate
The interest rate determines how expensive a loan is.
Consider these two loans:
- A $1,000 loan at 20 percent annual interest, repayable after a year
- A $1000 loan at 10 percent annual interest, repayable after a year.
If you take out the first loan, you’ll pay back at least $1,200. The second loan will have you paying back $1,100. There’s a $100 difference between these loans, just because of the interest rate.
As such, one of the most important considerations to make when applying for a personal loan is the rate the lender is charging on it. Ideally, you want to get a rate that’s as low as possible, but this isn’t always possible if you have bad, poor or no credit.
There are also other factors that will influence interest rates on loans, such as the prevailing LIBOR. On that note, keep an eye on the anticipated LIBOR replacement and find out how it will affect rates on consumer loans.
This is the amount of time the lender will allow you to repay the loan.
Since personal loans are installment loans, you’ll pay it off in equal monthly installments. A shorter loan term means you’ll have higher installments while a longer-term loan will mean lower installments.
Let’s take the example of loan 1 in the example above.
In one year, you’ll pay $100 every month. But if we extend the repayment period to two years, the monthly installment amount drops to $58, but you’ll end up paying a total of $1400.
Which do you prefer?
It all depends on your personal situation. A shorter loan is the best option when you want to save money, but if you can’t afford to make the higher monthly installments, a longer-term loan will serve you best.
Do you have excellent, good, bad, or poor credit?
Your credit will affect more than just the interest on your personal loan. It could mean the difference between an approved application and a rejected one.
If you’ve got excellent or good credit, luck is on your side. The only thing that might keep you from getting approved is a lack of steady income.
If you’ve got bad or poor credit, you should focus on finding lenders who offer bad credit personal loans.
It’s Important to Find the Best Personal Loan
A personal loan can get you out of a financial emergency and enable you to make your ends meet, but it can also push you into debt. It’s for this reason you need to find the best personal loan; one with terms that suit your current financial situation.
Keep reading our blog for more personal finance tips and insights.