Applying for a personal loan can be stressful. You want to make sure you receive the best deal possible and lower the cost of borrowing money. Obviously, the lower your costs are, the quicker you can become debt-free. There are many factors to consider when choosing the right loan for you.
From the interest rate to the choice of lender, all of these factors can make your head spin if you aren’t careful. However, conducting a personal loan comparison isn’t as tough as it sounds. Here are 3 tips to help you choose the right loan all the time.
Before applying for a loan, it’s best to shop around with as many lenders as possible. These days online lenders offer great rates for people with all levels of credit. If you have poor credit, applying online might be your best choice since traditional lenders will likely deny your application.
Credit unions and smaller banks usually have an appetite for more risk, so they might also be a good option for those with poor credit. Major lenders’ appetite for risk tends to fluctuate, depending on the state of their portfolios. It never hurts to check with them, and you might receive a low interest rate.
Make sure to check the fine print regarding fees and unpaid dues. Some lenders offer low rates but tack on additional fees that make up for the low rate. In essence, it’s still a poor deal. Some even offer promotional periods of low interest rates before reverting to unreasonably high rates. Watch out for these tactics, and always make sure you understand everything before signing.
Sometimes, it makes sense to review the loan qualification criteria to check whether you can qualify for a better deal by improving certain aspects of your financial life. For instance, someone with a lower debt load might receive a better offer. Paying off older debts and consolidating other loans might result in you receiving a better offer.
One of the disadvantages of applying with different lenders is that all of them might conduct a hard credit inquiry that lowers your FICO score. The vagaries of FICO score calculation are many, so it’s best to avoid anything that might potentially lower your score. A hard credit check from one lender might lower your score and push you into a less-favorable tier with another lender, damaging your chances of scoring a good deal.
Thanks to online loan comparison tools, the task of comparing ballpark loan figures is simple. Many lenders even allow you to qualify for pre-approval by providing basic personal information. This lets you compare pre-approval rates with multiple lenders before choosing one and initiating a hard credit check.
Always specify that you’d like a soft check at first. If a lender refuses to do this, discard them from your comparison process and find lenders who agree.
Personal loan terms can get confusing, and many applicants reduce their choice down to the interest rate. However, this is taking the wrong view. Interest rates matter, but it isn’t the only factor that you should look at. You need to consider the loan term as well.
For instance, a lender might offer a low interest rate but a lengthier repayment term. This means you’ll be saddled with debt for longer. This might suit some people if they don’t have to apply for further financing. However, if you plan on drawing loans in the future, you should try to clear your debts as quickly as possible.
Variable-rate loans are generally unfavorable to applicants and carry a high degree of risk. However, you can make them work if you’re savvy enough. These loans have a low interest rate initially and then reset to a higher rate. The low rate usually lasts for 6 to 8 months. If you can clear your debt within this time, you’ll lower your costs dramatically.
However, if something goes wrong, you’ll end up spending much more. Evaluate these risk-reward scenarios carefully when comparing loans. If variable-rate loans intimidate you, it’s best to stay away from them. You’ll often hear of people with variable-rate loans transferring their unpaid balances to a different company or consolidating their debt.
Again, these situations are viable, but they involve a lot of risks. More often than not, you’ll only increase your debt burden. Keep it simple and compare all options that you understand well.
A tough task, but worth the effort
Comparing personal loans looks tough on paper, and it can be if you go about it the wrong way. Follow these 3 tips to make sure you always receive the best offer and reduce your total costs. By focusing on lowering overall costs, you’ll end up repaying your debt faster, and your credit score will recover quickly.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.