Advertisements for personal loans, bad credit financing, fast cash, and quick money are everywhere consumers look. Personal loans are offered through the mail, online, on TV, and over the phone. It seems around every corner, someone wants to lend us money! Not all loans are created equal however. With so many low-interest, bad-credit, no credit options to choose from, how do we decide which personal loans and rates are right for us?
Interest Rate – When comparing one personal loan with another consumers must first look at the interest rate quoted for each loan product. Some personal loans are offered at variable rates, while others are fixed. Variable rate loan APR’s, (Annual Percentage Rate) fluctuate with the Prime Lending Rate, www.federalreserve.gov.
Because of this, the monthly loan payment amount will rise and fall as the rate changes. Using a personal loan calculator can help consumers determine what a possible monthly loan payment would be however, based on a particular APR.
Comparing Low Interest Personal Loans
Many lenders offer low interest “teaser” personal loan rates or “introductory” rates that entice borrowers to take out a personal loan. Some even “lock-in” low adjustable rates for a short period of time to attract consumers. After the introductory period ends however, loan rates will revert to a higher APR and monthly payments will go up.
When comparing personal loans, it’s also important to be aware of the higher interest rate some lenders apply if the payment is made late. This can be two to three times the current interest rate for the loan.
Consumers who choose a low introductory rate personal loan often plan to refinance the loan before the introductory rate period expires, or to pay off the loan entirely. Some lenders also offer personal loans with bad credit. Because of the higher risk lenders must take, interest rates for these types of personal loans tend to be much higher.
While bad credit in the past is not always an indicator of how well consumers will pay bills in the future, creditors do rely heavily on credit history when making lending decisions. Some online personal loans are specifically marketed, “personal loans with bad credit” as well.
Other Personal Loan Factors
Fees, Charges and Penalties – Banks and other lending institutions almost always include a series of fees, charges, and penalties that they add onto the original loan amount, or charge consumers after the fact. These may include loan origination fees, processing fees, late payment penalties, and early payoff penalties.
Some of these may be negotiable depending on your relationship with the lender, but others are set fees required for every borrower. When comparing personal loans, all things being equal, fees, charges and penalties can make a difference in the ultimate cost of a personal loan.
Loan Term – While a lower interest rate might be enticing to some consumers to keep payment amounts down, the overall cost of a loan could be higher if the loan term is longer in months. When comparing personal loans to get the best deals, it’s important to make sure the loan term is the same for each of the products.
Secured vs. Unsecured – Generally speaking interest rates for an unsecured personal loan will be much higher. This is because the lender takes a much bigger financial risk with unsecured personal loans when there is no collateral to back the loan. With a secured loan the bank or lending institution can seize the asset and sell it to recoup some of its’ loss.
Whether shopping for personal loans online or in person, finding the personal loan that’s right for you and your financial situation is an important aspect of money management. By learning about the factors that affect credit such as interest rates, terms, fees and charges, you’ll be better prepared to make decisions that impact your financial future.