What is a personal loan? Simply put, personal loans can be obtained by consumers through traditional financial institutions, credit unions and even private, online or payday lenders that can be repaid in the short-term.
There is no one good reason for needing to request a personal loan. Be it for decreasing personal debt, putting a down payment on a house or planning a wedding – the list goes on and the reasons are endless. When in need of quick money, a personal loan is a great option because the application and approval process is relatively fast when compared to other options like a home equity line of credit.
This type of loan is generally unsecured, which means you don’t need to provide collateral in order to be approved. When it comes to loan repayment terms, most agreements request monthly installments over a 24-to-60-month period, sometimes longer.
Choosing a Personal Loan Lender
When it comes to applying for a personal loan, you should always take the time to do your research, compare different lenders as well as their loan terms and consider the following 6 key points:
1. Terms and Requirements for Approval
All lenders have their own approval thresholds surrounding factors such as credit score, debt, and income. For example, if you have a poor credit score, you might want to look at personal loans offered by private, online lenders who are typically more lenient when it comes to credit score and take other criteria into consideration such as job history.
2. APR
When it comes to interest rate, you definitely need to compare individual quotes to your direct situation. Just because a lender advertises the lowest rate, those numbers aren’t necessarily guaranteed for your situation. Furthermore, when comparing interest rates, you’ll also want to track any additional fees such as penalties in case of faulty payment or application charges. Certain factors can greatly affect the final loan cost.
3. Total Cash Needed
Depending on what your reasons are for requesting a personal loan, you may need a smaller or larger amount. Certain lenders will be great for small sums to fix your vehicle for example, while others would be more ideal in the case you need to borrow thousands for a medical bill.
4. Repayment Terms
Lenders often offer different loan repayment options, ranging from short payment terms to much longer ones. Typically, a short-term loan is considered anywhere between 24 and 60 months. Keep in mind that longer terms will decrease monthly payments but increase interest rate while shorter terms will increase monthly payments but decrease the amount you pay in interest as a whole!
5. Appealing Deals
When choosing your lender, make sure you look at any perks they may be offering to first time lenders, or deals they may have running at the time. The same goes for any restrictions a certain lender may have. Make sure you have the freedom to use your loan as you please, as certain lenders require the loan sum to be used for specific situations such as debt consolidation, for example.
6. Available Customer Service
When borrowing a personal loan, you want to find someone who is readily available and willing to work with you – not someone who isn’t willing to listen and only wants to make money off your back. In other words, it’s wise to take a look at a lender’s customer service, especially if you appreciate in-person services.
Ultimately, it’s important to do your research before applying for a personal loan – much like with any type of loan for that matter. Different lenders have different application requirements, repayment terms and interest rates that may affect your final decision!
Common Questions
What is the difference between APR and interest rate?
Although similar and often misunderstood, interest rate is solely calculated on the interest you’ll be paying monthly or yearly on a loan. APR, or Annual Percentage Rate, is the total sum of interest and all loan-related fees combined.
What are Secured and Unsecured Personal Loans?
Simply put, a secured loan is a loan that is guaranteed or backed by a borrower’s personal assets, usually a home or vehicle, known as collateral. In the case of faulty payment, the borrower may lose their property. A secured loan is often attached to lower interest rates due to the collateral provided.
On the other hand, an unsecured loan comes with higher interest rates because the lender accepts to take on more risk. In order to be approved for an unsecured loan, you’ll have to prove a prime credit score. Unsecured loans are not guaranteed through collateral.
What does “Repayment Term” mean?
Repayment terms are simply the conditions to which you must abide during your repayment schedule. Broadly speaking, loans can be repaid anywhere between a 1- and 10-year timeframe. Personal loans are usually reimbursed through monthly installments.