"How to Compare Personal Loans: Tips, Rates,
and Fees to Get the Best Deal"
How to Compare Personal Loans
Key Takeaways:
- The average interest rate on personal loans is under 13%.
- Typical fees include origination charges, penalties for early repayment, and late payment fees.
- Some lenders allow co-borrowers or cosigners on your loan.
When you're looking for the best personal loan lenders, it’s important to shop around and compare offers. Personal loans come with varying terms, interest rates, fees, and customer service options. Knowing your needs upfront will help narrow down your choices.
Typically, you can borrow amounts ranging from $1,000 to $50,000 with repayment terms up to seven years. Interest rates generally range from 8% to 36%, depending on your credit score and other factors.
Comparing Personal Loans
Every lender offers something different. Before you apply for a loan, it’s a good idea to compare at least three lenders based on the following factors to find out which one offers the best loan for your financial situation.
The best lender for you is one that’s easy to work with, offers terms you understand, and provides terms you can afford.
Approval Requirements
Every lender has its own set of criteria for approving borrowers.Most lenders consider factors like your credit score and income to determine whether you qualify for a loan. However, some lenders might also take into account your educational background and work experience. Researching the eligibility requirements before you apply can help you narrow down your options to lenders that offer loans suited to your credit profile.
Interest Rates
The current average interest rate for personal loans is under 13%. Nonetheless, interest rates can vary between 7% and 36%. The interest rate you get will depend on your credit score and the loan term.
Lenders often advertise low rates to attract customers, but these rates are typically reserved for individuals with excellent credit scores—usually 800 or above. If your credit is good, you may still qualify for competitive rates, but they might not be the lowest advertised.
Co-signers
If your credit score is less than ideal, you can expect to pay a higher interest rate. Look for lenders that allow you to apply with a co-borrower or cosigner. This can increase your chances of approval and reduce the interest rate you’ll pay. Not all lenders offer this option, so it’s important to do your research before applying.
If you do find a cosigner but still receive a high-interest rate, you might want to focus on improving your credit score before applying. A high interest rate can cost you thousands of extra dollars over the life of the loan.
Fees
Make sure to check for any fees, such as application fees, prepayment penalties, or origination fees. These fees can add to the overall cost of the loan, even if the interest rate is competitive.
Loans for individuals with bad credit often come with origination fees. Some lenders charge up to 12% of the loan amount, but fees can vary widely.
"Make sure you understand all the fees associated with the loan," says Denny Sezik, a senior loan writer at Wright Bank. "They’ll be deducted from the amount you receive, which could be an unpleasant surprise if you were expecting a specific amount of cash."
Loan Amounts
Personal loans typically range from $1,000 to $50,000, though some lenders offer loans up to $100,000. For many people, this range is enough to cover most major expenses. Larger loans are generally available to borrowers with higher incomes and good credit scores.
Check the maximum loan amount with the lender when you apply, as some lenders may have a lower cap—sometimes only up to $35,000 or less. This might be sufficient for your needs, but it’s important to consider this when comparing lenders, especially if the lender charges high origination fees.
Repayment Options
The length of your loan term has a significant impact on how much interest you’ll pay. If you choose a shorter loan term, like two years, you could save hundreds or even thousands of dollars in interest over the life of the loan.
On the other hand, if you go with a longer term, like six or seven years, you might be able to keep your monthly payments lower, but you’ll pay much more in interest. Ideally, you should choose the highest monthly payment you can afford to minimize the interest you’ll pay.
Unique Benefits
Many lenders offer additional perks to make their loan deals more attractive to customers. For example, some lenders provide free credit score monitoring and credit reports to help you keep track of your credit status. Others may offer online privacy protection services to keep your information secure and safe from cyber attacks.
Additionally, some lenders offer discounts for automatic payments to help lower your borrowing costs. You might also find an option that includes enrolling in unemployment protection for a small fee. This service is designed to suspend your payments and protect your credit if you lose your job.
Customer Service and Experience
Some lenders only offer email for inquiries, while others provide phone and live chat options. If you're applying for a personal loan from a bank or credit union, you might be able to get more personalized service at local branches.
In addition to looking at the available communication options, you should also check reviews of the lenders on sites like Trustpilot and the Better Business Bureau (BBB) to see if they’re reliable and trustworthy.
Types of Loans Offered
Personal loans generally fall into two categories: secured and unsecured, and they can come with either fixed or variable interest rates. Many personal loans are marketed for a specific purpose.
Some lenders offer loans for people who have credit issues in their past.
Debt consolidation loans allow you to pay off multiple debts with a single loan, typically at a lower interest rate, making it easier to manage your payments with just one monthly bill.
Emergency loans are designed to cover unexpected expenses and financial emergencies.
Home improvement loans allow you to make expensive upgrades to your home without needing to use the equity you've accumulated.
Things to Consider Before Applying for a Personal Loan
Understanding how the process works and how your financial situation affects your approval chances is crucial. Here are three important things to keep in mind before you apply:
Look for member discounts. If you're already a customer of a bank or credit union, they might offer discounts when you apply for another product, like a reduced interest rate or an extended grace period.
How your credit affects eligibility. Lenders take multiple aspects of your credit history into account when determining eligibility, such as your total debt and payment habits. If you have a short credit history or haven't met the lender's criteria, it could hurt your chances of approval.
Credit check. When you apply for a loan, lenders will perform a hard credit check, which can temporarily lower your credit score by a few points.
How to Get a Personal Loan
There isn’t a one-size-fits-all approach to personal loans. The best loan for you will depend on your financial situation and the type of loan you qualify for.
Narrow your choices based on your eligibility and the factors that matter most to you. Be sure to consider interest rates, loan amounts, and fees when making your decision.
Apply for pre-qualification. This can help you see what offers are available to you without affecting your credit score, making it easier to compare different options.
Review the lender's terms. One lender might have the best interest rates, but they could charge early repayment penalties, which could make it harder to pay off your loan ahead of schedule.
Complete a full application. After narrowing down your choices, you'll need to submit a complete application. The lender will then ask you to sign the final documents before disbursing the loan.
Before applying for a loan, be sure to run the numbers to make sure you're making the best decision. High fees or higher rates don’t always mean the lender is a bad choice—it might come with other perks, like better customer service.
Final Thoughts
At the end of the day, the best personal loan for you comes down to the lender’s reputation, along with the terms and benefits they offer. While your credit score, income, and overall financial history will determine your eligibility, it's a good idea to gather quotes from several lenders to compare rates and fees.
With some research and time, you’ll be able to find the right lender for your financial situation.