Introduction
When you are shopping for a personal loan, the most important factors to contemplate include the lender’s minimum credit score criteria, annual percentage rate, loan term, and potential loan fees. The specifics will always vary from lender to lender—some lenders may accept loan requests even with an average credit score while others may reject it.Â
So taking some time to check out different lenders is essential even if you are in an emergency because even though personal loans are a convenient way to finance almost all personal expenses, they do come at a cost. With a bit of patience and effort, you will be able to find a lender who offers the best personal loan features. In this article, we will be discussing the different factors that all potential borrowers should look into while looking for personal loans.
Factors to consider while shopping for a personal loan
- Minimum Credit Score Required
Sometimes our preferences take a back seat because lenders’ criteria are strict and if you don’t meet them, there’s nothing you can do about it. For example, some lenders only accept loan requests from people with a credit score of at least 600 while others might let you borrow even with a credit score of less than 500. However, to qualify for the most favourable terms, most lenders will expect you to have a credit score of 670 or higher.
- Annual Percentage Rate (APR)
APR is one of the most important factors to consider when you are comparing personal loans. APR or Annual Percentage Rate is the interest rate you will be paying, including any potential fee the lender might charge. The higher the APR, the higher the overall cost of the loan.
- Loan Term
Most personal loans have a repayment period between two to five years. However, some lenders offer longer terms. For example, some lenders might offer you a repayment term of up to seven or even ten years. A longer repayment term would mean a lower monthly payment but you will end up spending more overall because a longer length would mean more interest rate.
Similarly, a shorter repayment term will have a higher monthly repayment but you could pay off the debt sooner and save money on the interest. Analyze your finances and requirements to figure out if a shorter repayment term would be better for you or a longer one.
- Loan Fees
Most lenders will have additional fees that you need to be aware of before applying for a loan. This includes origination fees, prepayment penalties, returned payment fees, and late fees, among others. Some lenders might not charge these fees, which is why it’s important to ask around before settling on a lender. Additionally, if your credit score is really good, you might be able to negotiate with the lender to remove some of these fees.
- Collateral
If you are concerned that your credit score is bad or that you don’t have a stable monthly income, it might make sense to sign up a collateral to secure the loan. These types of loans are called secured personal loans. A collateral could be a property, a car, or any type of personal asset that you fully own. But keep in mind that if you default on the loan, the lender or bank will cease the collateral.
- Processing time and procedure
Every lender will have different processing times and procedures to determine whether to approve the loan request or not. If you need the funds urgently, look for a lender that can process the request the same day. Some lenders offer 24-hour processing time which means if your request is approved, then you will receive the funds the very next day. This factor can help you narrow down the options.
Conclusion
Before you start with anything, it’s important to consider your financial needs and situation first. By noting down how much you need, your monthly income, and how much of your income you can afford to give as repayment after your personal expenses, you will have a better idea of what terms would be best for you. Once these points are down, you can compare different lenders and find the one best for you.
