Comparing prices for the best personal loan might not be fun, but it is definitely worth it. Consider that over the life of a three-year loan, even a $ 10 difference in monthly payments is $ 360, which is not a small amount of money.
Below, I’ll discuss the best way to compare personal loans, as well as some tips you can use to get the best rate on your next loan.
How to properly compare personal loans
When it comes to comparing personal loans, the Annual Percentage Rate (APR) on the loan is what matters most. The APR is a percentage that reflects the annual cost of a loan, including interest and applicable fees. The interest rate alone doesn’t tell the whole story, so the APR is the best way to compare two loans on an apple-to-apple basis. In the United States, lenders are required to provide an APR when making a loan offer.
Get the best deal on a personal loan
The personal loan market is more competitive than ever before. Using the Internet, borrowers can get quotes from several different lenders in minutes, while getting quotes from multiple offline banks would take a full day of commuting from one branch to another.
There are a few things you should know about finding the best loan terms:
1. You won’t hurt your credit score. The best online personal loan providers now allow borrowers to get a quote for a loan with a gentle credit check. This means that you can get quotes from 20 different lenders without having to do a thorough investigation of your credit report, which means your credit score won’t suffer. It is only when you accept a loan that a lender will make a sharp withdrawal of your credit for verification purposes.
2. The terms of repayment are important. The longer you take to repay a loan, the higher the APR will be. A shorter loan term reduces your APR by reducing the amount of interest accrued on your balance.
3. A co-signer can help you. Some personal loan companies allow you to have a co-signer when obtaining a loan. If you have bad credit, a co-signer can make a big difference in the rate you receive, but finding a co-signer isn’t going to be a walk in the park. If you don’t make the payments, the co-signer is legally responsible for the balance.
4. Some lenders have special offers. Some companies offer lower APRs to borrowers who meet certain criteria. For example, some of the best personal lenders offer a rate reduction to people who have good credit scores or who agree to set up automatic loan payments from their checking accounts.
5. Paying off small card balances can help. If you have small debts, paying them off before applying for a personal loan can help you qualify for a larger loan or a lower APR. Lenders can determine how much you owe on other debt each month from your credit report, which they can use to determine how well you are able to make payments on a personal loan. If you have a handful of low balances, eliminating them before applying for a personal loan could be beneficial.
Loans:5 simple steps to consolidate your debt with a personal loan
Retirement:The only retirement risk you probably aren’t preparing for? Depression
In reality, your ability to get a lower rate on a personal loan is only limited by your willingness to shop around. Of course, it’s probably not worth applying for 100 different loans just to reduce your APR by 0.1%. However, getting quotes from three different lenders will give you an idea of ââwhat you can expect to pay on a loan and what type of APR you are likely to get.
The lean on personal loans
Personal loans can be used for just about anything, but they are more convenient when used to consolidate high interest debt. For example, using a personal loan with an 8% APR to refinance $ 5,000 of credit card debt at an 18% APR can save you almost $ 867 in interest over a repayment period of three years. That’s serious savings!
Personal loans can also be used for consumption. You can use them to pay for moving expenses, home renovations, or vacations. It goes without saying, however, that using a personal loan for “wishes” rather than “needs” can be costly. Using a $ 3,500 personal loan to pay for the vacation of your dreams can be fun, but making monthly payments of $ 110 or more for the next three years certainly won’t.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.