Getting a personal loan can be easy and difficult at the same time. These days you can simply go online, enter your details, and be approved in a matter of minutes – it is that simple. However, how do you know if you are getting the best terms? Sure, you could apply for multiple loans at the same time, but this means that you will be running multiple credit checks almost simultaneously and this will have a negative effect on your credit score.
As such, you are left with a choice – go to your local bank and hope you get approved or shop around online to find out as much as you can about a potential lender before applying. As you can imagine, neither approach is ideal. But this doesn’t mean that you won’t be able to get a personal loan at an interest rate you can afford and here are some tips to help you achieve that goal.
Step 1: Understand the Process
The worst thing you can do when getting a personal loan is not knowing how much money you will need as this could lead you to apply for too much, or not enough. In either case, you won’t get the funds you need and then you’ll be left with having to repay the loan. As such, you will want to figure how much you need, what you need it for, and when you will need it by.
From there you will want to pull your own credit score as this will give you an idea of your creditworthiness and will allow you to catch any surprises before you apply for your loan. Once you have this information in hand, then you can visit the websites of lenders who specialize in personal loans including banks, finance companies, and even credit unions such as partnersffcu.org.
Most of these companies will allow you to get a pre-approval online but visiting their site will also allow you to check out the terms and conditions tied to the loans these companies offer. Additionally, you will want to check out the reputations of these lenders. This includes searching sites like Consumer Reports.
Step 2: Make a List and Check it Twice
At this point, you will have figured out what you need your loan for, how much you need, and when you need the money by. In addition, you will have done your homework by checking out potential lenders to learn about the loan programs they offer and their reputations. Now it is time to decide to rank the lenders based on their offerings and their reputation and then decide where to apply.
This is an important step and it is often overlooked by borrowers. Unfortunately, this often means they are paying too much for their loan. Don’t let this happen to you. Instead, take the time to compare the loans you are considering and then pick your lender based on who has the most advantageous terms to suit your need.
Step 3: Do the Math
You’ve picked a lender and now you are in the process of applying for a personal loan. At this point, you might think that your work is done but you’d be wrong. This is when you will need to get your pencil and calculator (or maybe just an Excel spreadsheet) and do a little math.
What you want to look for are the following items: 1) are there any closing costs or commissions? 2) What is the monthly interest rate and the annual percentage rate (APR)? Remember these two “rates” are not the same, the interest rate is just that, while the APR includes any fees charged on an annual basis. 3) What is the loan term – i.e. the length of your loan?
From here you have the information needed to calculate how much you will need to pay each month and importantly how this will fit into your monthly budget, assuming you have one of these. Another thing to remember when doing the math – you want to use short-term loans to pay for short-term needs. Don’t get a personal loan at an interest rate approaching credits cards if you are not expecting to repay the loan within the next year.
If you are looking for a longer financing option, then you might want to consider something at a lower rate such as a home equity loan or asking friends and family for help. The reason for this is simple, as high-interest rate, short-term loans can be expensive if amortized over twelve months or more and if you are not careful you could end up paying two-to-three times the principal amount of the loan.
So, when it comes to getting a personal loan at a rate you can afford remember to understand the process, making a list and checking it, and lastly do the math. This will help you to find the best possible loan for you at a monthly payment that risk your credit score in the long run.