Personal loans are offered by banks, credit unions and online lenders. There are many options available, but not all are worth considering. Importantly, some lenders offer more attractive personal loan products than others. Lenders also offer different rates to applicants depending on the potential borrower’s financial situation.
To find the best personal loan lender for you, you’ll want to shop around and evaluate the types of loans each lender offers. You need to consider APRs, fees, and the overall experience you expect as a customer to make an informed decision.
Why Shopping for Lenders is Important
It is imperative that you shop around several lenders to ensure you get the best deal on a personal loan. If you settle for a loan with the first lender you find, you may be able to get a significantly higher interest rate than you qualify for elsewhere. You may end up with a monthly payment that lowers your budget, and you could end up paying hundreds or thousands of dollars more in interest over the life of the loan.
Many lenders allow you to get pre-qualified online in minutes. You can view loan estimates without affecting your credit score and compare them to other personal loans you may be considering. By doing this, you can get the loan at the lowest cost.
What factors should be used to evaluate lenders?
When comparing personal loan options, you want to evaluate the reputation of the lender and the interest rates and fees they charge. It is also important to consider the types of loans offered as some may not work for you.
The interest rate, or cost of borrowing, is usually determined by your credit score and the term of the loan. Lenders advertise low interest rates to attract customers. However, the lowest rates are usually reserved for customers with excellent credit. A good credit score can also get you competitive interest.
If you have less than perfect credit, you can expect to pay more interest. Therefore, you should look for lenders who weigh other factors like your job history or educational background to get you a personal loan with a competitive interest rate.
Does the lender charge an application, origination or prepayment fee? Depending on how much you borrow, these costs can add up quickly, even if they are rolled into the loan.
To illustrate, assume you get three quotes for a $10,000 loan. The first lender charges an origination fee of 8 percent, while the other two charge 6 percent and 2 percent respectively. Depending on which personal loan you choose, you will pay $800, $600 or $200 in addition to principal and interest.
Many lenders offer personal loans with no application or origination fees, and you won’t be penalized if you pay off your loan early. But these aren’t the only fees to consider – examine the fee schedule to determine how much a lender charges for late or returned payments.
However, don’t let fees disqualify a particular lender. In some cases, the loan may be worth less even if you have to pay some fees.
What are the hours of operation for the lenders you are considering? Are they available by phone, email or chat? Can you visit a physical location to get help? These are just a few questions to consider as you evaluate lenders to gauge whether they are readily available.
Types of loans offered
Do you have a specific purpose for the loan, or will you use the funds to get back on track financially? Lenders usually do not restrict the way the funds can be used. However, personal loans are either secured (or require collateral for approval) or unsecured. They also come with a fixed rate that stays constant or a variable interest rate that changes over time, and many are marketed for a specific purpose. Common categories include:
- Bad credit loans are offered by lenders to consumers with past credit challenges
- Debt consolidation loans allow you to pay off multiple debts with a new loan, typically at a lower interest rate, and simplify the repayment process by making a single monthly payment.
- Emergency loans are designed for unexpected expenses and last-minute financial emergencies
- A home renovation loan is used to make expensive upgrades to your home without tapping into the equity you’ve built up
How to choose the best lender for you
Ultimately, the best lender for you depends on the lender’s reputation and the loan terms they offer. Although your credit score and overall financial history will determine whether you qualify for a loan, you’ll want to get quotes from several lenders and evaluate interest rates and fees. It is also important that the lender has a track record of providing exceptional customer support to its past and present customers.
Before you apply for a loan, run the numbers to make sure you’re making an informed decision. A high loan origination fee does not mean that the lender is not worth considering, especially if interest rates are low and vice versa. A personal loan from a lender that is not reputable or provides poor customer service may be more expensive.