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A quick search for “best personal loans” will bring up tons of results. However, personal loans can be a great source of funds for a variety of purposes: car repair and debt merge into home decoration project.
“A good loan can save you money without breaking your budget,” says Clay Cary, senior trend analyst at CouponFollow, a real-time coupon code resource. independent in an email. “But you should always look for … no unexpected fees, and a clear payback plan.”
To simplify the search for outstanding individuals loan Choose, come up with a plan to determine the best lender and loan for your situation. A methodical and thoughtful approach will produce better results in the long run.
Know how much you want to borrow (and whether it’s within your budget)
The first step to finding the best personal loan is determining how much money you need to borrow. If you need a fixed amount of money, taking out an equal-amount loan is usually the right choice; borrowing more than you need can lead to impulse and unnecessary purchases.
However, if the loan is for a project that may shift costs, such as a home improvement project, you may need a 5-10% cushion to cover any unexpected expenses.
Then, go online and use a loan calculator to determine what your monthly payments will be relative to your total amount. The calculator usually lets you choose a loan amount, a repayment term, and an interest rate.
Experiment with repayment terms and interest rates to see which loan meets your financial needs and whether the monthly payments fit within your budget.
Remember, a personal loan interest rate Part of it depends on your credit score, according to the Consumer Financial Protection Bureau. So, before applying for a loan, check your credit.
Generally speaking, the higher your credit score Lower loan interest ratesaccording to the Federal Trade Commission’s Consumer Advice Resources. If you’re not sure what interest rate you should use, enter the average interest rate for a two-year personal loan, which is approximately 11.65%According to the latest data from the Federal Reserve.
Finally, it’s important to have clear intentions with your loan, as most lenders have restrictions on what it can be used for. For example, some lenders won’t allow loans to be used for college or business expenses, and illegal activity is certainly out of the question.
Let lenders compete
The Consumer Financial Protection Bureau recommends gathering multiple loan offers through pre-qualification once you determine a loan amount and a manageable monthly payment.
Generally speaking, personal loan prequalification will not hurt your credit score and will provide a rough estimate of the loan amount, term, interest rate, and monthly payments.
Another option is to get offers from one lender at a time, or use a loan marketplace that provides multiple offers based on one pre-qualification submission.
Once you get a loan quote, compare key features:
- interest rate: The higher the interest rate, the more you pay in interest over time. Ideally, you should choose the loan with the lowest interest rate. But keep in mind that loans with shorter terms tend to get better interest rates because the lender’s risk is reduced if you repay the loan within 24 months instead of 72 months.
- Repayment period: This usually has the biggest impact on monthly payments. Generally speaking, the longer the repayment period, the lower the monthly payment, and vice versa.
- Loan amount: Double check whether the loan amount meets your requirements.
- Origination fee: Some lenders charge an origination fee to process the loan. The fee is usually a percentage of the amount and is deducted from your loan balance before you receive the funds. So if you borrow $10,000 and the origination fee is 5%, the lender will deduct $500 from your loan amount and send $9,500. If possible, choose a loan with no origination fee—several reputable personal lenders offer this.
- Other fees: Reportedly, some lenders may charge late payment fees mycreditunion.gov. If you tend to be late with your payments, consider setting up automatic payments to ensure you’re paid on time. If you’re still concerned, be sure to identify a lender that doesn’t charge late fees.
Additionally, try asking questions of each lender via online chat support or over the phone. Notice how long it takes them to respond and how helpful they are. If you have problems with your loan, good customer service can make a difference.
Also, if the loan is used to pay off credit card debt, make sure the interest rate is lower than the credit card interest rate, Cary says.
Choose a winner and apply
Review the offers, and when you find one that offers the right balance of interest rates, repayment terms, and monthly payments, move on to the next step: apply.
The personal loan application will ask you to provide personal information and income as part of the approval process. Be prepared to provide recent pay stubs to confirm your income.
Some lenders can make an application decision in seconds and can fund your loan within days. If you need a personal loan quickly, be sure to consider the timing of financing as part of your decision-making process.