Taking out a personal loan is a convenient way to get the funds for a big purchase. Though it can be relatively easy to get approved for a loan, it doesn’t mean you should rush into picking one. Before borrowing any money it pays to do your due diligence to find the best personal loans for you. These are some of the most important factors to focus on when looking for personal loans:
The interest rate is the most important factor to take into consideration when shopping for personal loans. The smallest difference in interest rates can have a significant impact on how much you will pay over the life of the loan. Interest rates on personal loans vary widely from one lender to another.
Your creditworthiness also plays a role in the final quote that you get from any lender. Because of the wide range of interest rates it pays to comparison shop for the lowest rate.
Interest rates may be important but they certainly aren’t the only aspect to consider when shopping for personal loans. Fees are another factor that impacts the total cost of the loan. As with interest rates, these fees also vary from one lender to another. Some lenders don’t charge any fees. Others charge lower rates of interest on their loans but make up for it by imposing higher fees.
Ask if your loan comes with any of these fees:
- Origination fee – This is the fee some lenders charge for processing your application and disbursing your funds. The origination fee can range anywhere from 1% – 8% of the total loan amount. In some cases, it may be even higher.
- Processing fee – Some lenders charge borrowers a processing fee to cover the cost of processing the monthly payments. Even a nominal processing fee can add up to a substantial amount over the life of the loan.
- Prepayment penalties – If you have extra funds, putting it towards early payments may seem like a good idea. Paying off your loan early should ideally help you save on interest charges. However, some lenders impose a prepayment fee on early payments. Before you sign a contract with any lender, ask about their terms and conditions regarding prepayments.
- Late payment fees – This should come as no surprise. All lenders will charge you late payment fees on delayed payments. However, different lenders impose different last payment fees. You must ask the lender before you sign any agreement.
For lenders, getting their monthly payments on time is important. One way they can ensure timely payments is to get borrowers to sign up for auto-payments. With auto-payments, monthly payments are automatically transferred from your account to the lender’s account on the stipulated date. As an incentive, some lenders will offer you a rate discount if you sign up for auto-payments.
When looking for personal loans, you must compare all three factors to determine which is the ideal option for your needs.