Compare Personal Loans
So you’ve just decided to take out a personal loan. Maybe you now have time for that cooking course, or perhaps your house needs a major repair. What now? To kick things off, one of the first things you need to do, like any responsible borrower and consumer, is to research. If you’re going to take out a personal loan, then you need to know if you’re getting a good deal and the best way to do this is to compare what’s out there. Here’s how:
1. Look into several lenders. Our online marketplace on the top of this page lists a few of the lowest interest rates available and you can start with these. List down all the potential loans and their necessary details. As the term “compare” suggests, you need more than one or two to fully make the most of this exercise.
2. Make sure you compare similar types of loans. It’s useless to contrast a secure car loan with a balloon payment mortgage because obviously, they each have clear-cut differences. Compare personal loans with other personal loans.
3. When poring over the details, the first thing you need to look at is the annual percentage rate or APR, which describes the interest for the entire year. The APR also encompasses additional fees and charges, including loan origination fees, participation fees and late charges. Remember: The lower your APR, the less you have to pay for the loan. How low? The APR should be lower than your credit card’s interest rate.
a. Pay attention to other charges, like establishment and monthly service fees, which may negate the advantage of having a lower APR.
4. When comparing loans, don’t forget to look at the length of their repayment terms. Naturally, the loan with the longer term will have higher interest payments even if their APR is exactly the same.
5. Secured or unsecured personal loans? Secure loans usually have lower interest rates, but they require collateral as a guarantee to the lender. If you default on the loan, you lose whatever property you use as collateral. Unsecure loans, on the other hand, require no collateral, but come with a higher interest rate.
6. Unsecured fixed rate or unsecured variable rate? With unsecured fixed rate, your monthly payments are fixed and unchanging. This means you’re protected against increases (and decreases, unfortunately) in interest rates. The problem here is that if you make extra payments or lump sum payments, you have to pay a fee. With unsecured variable rate, the interest rate may change, but this allows you to make those extra payments and possibly complete the term earlier.
7. Never agree to a balloon payment no matter what—even if you’re expecting a huge windfall or own a small country. Balloon payments are done if you hold back and pay only towards the end of the loan. Aside from being heavy on the budget, those final payments would add up to a larger total. Ask the lender if you’re unsure whether the loan has one.