How to compare personal loans and choose the best option for you

To find the best personal loan provider for you, shop around and compare options. Personal loans come with different terms, interest rates, fees and customer support options, so knowing what you need from the start can help you narrow down your options.

In many cases you can borrow €1,000 to €50,000 with a repayment period of up to seven years. Typically, APRs range from 8 to 36 percent, depending on your credit score and other factors.

This is how you compare personal loans

Every personal loan provider has something unique to offer. Before applying for a loan, make sure you compare at least three lenders based on the criteria below to determine which one can offer you the best loan for your financing needs.

The best lender for you should be easy to work with and offer terms that you understand and can afford.

– Denny CeizykBankrate senior loans writer

Approval Requirements

Each lender has its own criteria for approving borrowers. Most lenders look at factors such as your credit score and income to determine if you qualify for a loan.

However, others may also take your educational background and employment history into account. By researching eligibility requirements before applying, you can narrow your choices to loans that fit your credit profile.

Interest rates

Personal loans currently have an average interest rate of above 12 percent. However, rates fluctuate from roughly 8 percent to 36 percent. The interest rate you get is based on your credit score and loan term.

Lenders advertise low interest rates to lure customers. However, the lowest rates on personal loans are typically reserved for customers with excellent credit – typically 800 or higher. A merely good credit score can also get you competitive rates, but not the lowest advertised.

Co-signatories

If you have less than perfect credit, you can expect to pay more interest. Look for lenders that allow you to apply through a co-borrower or co-signer, as this can improve your chances of approval as well as the interest rate you get. Not all lenders offer this option, so you should do some research before signing up.

If after getting a cosigner you’re still getting a high interest rate, you may want to work on your credit score before signing up. A high interest rate can mean that you have to pay thousands of euros more over the life of your loan.

Cost

Be sure to keep an eye on any fees, such as application fees, prepayment penalties, or origination fees, as these can increase the overall cost of the loan, even if you get a competitive rate.

Loans for bad credit are more likely to incur origination fees. Some lenders charge up to 12 percent of the loan amount, although this varies widely.

“Make sure you understand all costs associated with the loan,” says Denny Ceizyk, senior lending writer at Bankrate. “They are deducted from your money, which can be an unpleasant surprise if you need a very specific amount of cash.”

Loan amounts

Lenders often offer personal loan amounts from $1,000 to $50,000, although some lenders offer personal loans up to $100,000. For many people, this should cover almost all major expenses.

Larger loans go to borrowers with strong incomes and high credit scores.

Check your lender’s limit when you apply, as some may limit their borrowers to as little as $20,000. While this may be as much as you need, you should consider this factor when comparing lenders, especially if the lender charges high origination fees.

Refund options

The time it takes you to pay back your loan has a huge impact on how much your lender earns in interest. A two-year term may mean high monthly payments, but it means you’ll save hundreds or even thousands over the life of your loan.

A long loan term does the opposite. If your lender offers six- or seven-year terms, you may be able to keep your monthly payment low. However, you also pay considerably more interest. Ideally, you should have as high a monthly payment as you can afford to reduce the interest you pay.

Unique features

Many lenders offer additional benefits to sweeten the deal for customers. For example, some lenders offer free credit score monitoring, credit reports or online privacy protection services, in addition to autopay discounts and unemployment protection.

Customer service and experience

Some lenders only have email forms to submit inquiries, while others have phone and chat options. If you’re looking for a personal loan from a bank or credit union, you may also be able to contact a local branch in person.

In addition to contact options, review the lenders’ track record on consumer review websites, such as Trustpilot and the Better Business Bureau (BBB), to determine whether it’s a good idea to do business with them.

Types of loans offered

Personal loans are secured or unsecured with variable or fixed rates. Many types of personal loans are marketed for a specific purpose.

• Bad credit loans are offered by lenders to customers with past credit problems.

• Debt consolidation loans allow you to pay off multiple debts with a new loan, usually with a lower interest rate, and streamline the repayment process by making one monthly payment.

• Emergency loans are intended to cover unexpected expenses and last-minute financial emergencies.

• Home renovation loans are used to make costly upgrades to your home without tapping into the equity you’ve built up.

What you need to know before applying for a personal loan

It’s crucial to understand exactly how the process works and how your financial health affects your chances of approval. Here are three facts and tips to remember before applying.

1. Check for member discounts. If you are an existing member of a bank or credit union, they may offer discounts for taking out another product. Many offer an interest rate discount or an extended grace period.
2. Several facets of your credit affect your eligibility. When lenders look at your score, most dive deep into the details of your credit history, total debts and repayment habits. So if you have a short credit history and the lender does not cater to such borrowers,
3. Your credit score will take a hit. Lenders run a hard credit check when you apply for a loan so they can see your credit history. This will temporarily lower your credit score by a few points.

How to get a personal loan

There is no one-size-fits-all approach to personal loans. Which personal loan is best for you depends entirely on your finances and the type of loan you qualify for.

1. Narrow your choices based on your eligibility and the factors that matter most to you. Interest rates, loan amount and fees are all worth considering.
2. Request prequalification from each lender. This allows you to see your rates without hurting your credit and makes it easier to compare your choices.
3. Check the lender’s terms and conditions. One lender may beat the other on interest rates, but there may be a prepayment penalty that makes it more difficult to pay off your loan ahead of schedule.

4. Complete a complete application to confirm eligibility. If you do, the lender will have you sign the final paperwork before disbursing the loan.

Before you apply for a loan, run the numbers to ensure you’re making an informed decision. Origination fees or higher rates do not mean the lender is not worth considering. A personal loan from a lender that doesn’t have a good reputation or offers disappointing customer service could prove to be even more expensive.

Why it is important to look for lenders

Ultimately, the best personal loan comes down to the reputation of the lender and the loan terms it offers. Although your credit score and overall financial history will determine whether you qualify for a loan, you can get quotes from different lenders to evaluate rates and fees.

With research and time, you can find a lender that best suits your financial situation.