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Ready to bring your bathroom into the 21st century with a remodel? Or do you need to consolidate credit card debt? A personal loan may be able to help you.
Personal loans are installment loans, meaning you borrow a certain amount of money and pay it off in set amounts over a period of time. You can apply for a personal loan with a bank, credit union or online lender.
Whether you’re shopping for a new personal loan or want to refinance one, you’ll want to compare loan offers before signing on the dotted line. Here are some important loan terms to compare to help you find the right loan for your budget and circumstances.
Loan terms to compare.
When you’re borrowing money, you want to find a loan that meets your needs at the most-affordable terms. When comparing lenders, here are some of the loan terms you’ll want to review.
Interest rate and APR
The interest rate on your loan is a percentage of the total amount you’re borrowing and has a significant impact on its cost.
You may also see an annual percentage rate, or APR, in your loan offer. The APR includes the interest rate plus loan fees, which can give you a better sense of the loan’s true cost.
You’ll also want to pay close attention to the interest type: Is it fixed rate or variable? A fixed interest rate can stay the same during your loan. A variable rate can change — and possibly increase — during your loan term.
If you have good credit, you may qualify for competitive rates and terms — that’s because lenders consider you to be a less-risky borrower. If your credit score isn’t great and you’re not in a rush to borrow, consider working on your credit before applying. This may help you qualify for a more competitive rate.
Collateral
You’ll have to ask yourself whether you want to get a secured or unsecured loan. A secured loan is backed by collateral, like your home or car. But if you’re unable to pay a secured loan back, you may lose the property you used as collateral on the loan. An unsecured loan, on the other hand, doesn’t require collateral, so you don’t have to worry about potentially losing your property.
A secured loan may come with a lower interest rate than an unsecured loan, because the property securing the loan reduces the lender’s risk.
Fees
Before you sign any loan offer, you’ll want to check if the lender charges any fees — they can add up during the life of the loan. Here are some common fees to keep an eye out for.
- Origination fee — This is an upfront fee a lender may charge for processing your loan.
- Prepayment penalty — Lenders may charge prepayment penalties if you pay off your loan early. If you’re expecting a cash windfall or planning to pay off the loan ahead of schedule, check to see whether a fee will apply before committing.
- Late-payment fee — If you have a hard time making payments on time, you’ll want to check if your lender charges a late fee.
- Insufficient-funds fee — On a similar note, if your checking account often runs low, you may want to see if you’ll be charged an insufficient-funds fee. You could be charged such a fee for attempting to make a payment and not having enough money in your account to cover it.
Loan terms
Lenders may offer short-term and long-term personal loans. Some lenders may even offer extended terms, but a longer term isn’t always better. A long-term loan could result in lower monthly payments, but it may also mean paying more in interest over the long haul.
Monthly payment
Your monthly payment is the amount you pay each month until your loan is paid off. You’ll need to make sure it fits comfortably into your household’s budget so that you can eat and pay other bills while repaying debt. But the monthly cost doesn’t tell the whole story about the total cost of the loan.
The total amount
When you’re shopping for a personal installment loan, lenders should be able to tell you the total amount you’ll have to pay, including the loan principal plus interest and fees — though this excludes any late fees or insufficient-funds fees you may be charged.
A loan’s monthly payment doesn’t always give you a true picture of the actual cost. Getting a loan with a long term can lower your monthly payment, which makes a loan look cheaper — at first glance. But it can also result in an increase to your overall cost.
Bottom line
When you want to borrow money, shopping around to compare loan options will help you find the best personal loan for you. If you’re ready to start your loan search, consider looking at prequalification options.
Some lenders allow you to apply for prequalification by telling them basic details about yourself and your finances. Prequalifying lets you check potential rates and terms — often without a hard inquiry on your credit.
But prequalification is not the same as approval. You’ll still need to submit a full application for verification to find out if you’re formally approved and will receive official terms. But prequalification can give you an idea of what terms and fees may be available before you go through with an actual application.