How to Compare Personal Loan Options and Find the Right Fit

Personal loans can serve many different purposes, like consolidating high-interest credit card debt, funding a cross-country move, etc. The loan option that works for one thing probably won’t work for another. If you understand what each one can offer, you can narrow your choices and find a loan that gets the job done without putting extra pressure on your pocket.

Types of Personal Loans

Unsecured Personal Loans

An unsecured personal loan doesn't require collateral. You borrow a specified amount and repay it in monthly installments over an agreed period. The lender mainly considers your credit score, income, existing debts and ability to repay when reviewing your application.

Secured Personal Loans

A secured personal loan needs collateral, such as a car, savings account or certificate of deposit. The lender can claim that asset if you fail to repay the loan. Since the collateral reduces the lender's risk, you may qualify for a lower interest rate or a larger loan amount than you would with an unsecured option.

Debt Consolidation Loans

It allows you to take several existing balances and consolidate them into a single new personal loan at a better interest rate. Rather than having many due dates and interest rates to manage, you'd have one fixed monthly payment.

Fixed-Rate and Variable-Rate Personal Loans

A fixed-rate personal loan keeps the same interest rate throughout the repayment period, which makes it easier to plan around rent, utilities, groceries and other bills.

A variable-rate personal loan has an interest rate that can vary in line with market conditions or a specified index. The initial APR may be quite low, but it can subsequently go up. A variable rate may suit someone who expects to pay off the loan quickly and is prepared to handle a potential increase.

Joint and Co-signed Personal Loans

Applying with another person can improve your chances when you're exploring installment loans online for bad credit or insufficient income. Some lenders will offer a joint personal loan; others will allow a qualified co-signer.

With a joint loan, both applicants are liable for repayment and may have access to the funds. A co-signer agrees to pay it off if the main applicant can't, but they won't normally have access to the funds. A stronger applicant's credit and income will obviously help in securing the loan on the best terms.

Personal Lines of Credit

Instead of getting the full amount upfront, you're approved for a borrowing limit and can draw on it as and when you need to. You'll normally only pay interest on the amount you've actually borrowed. As you repay what you've borrowed, the credit facility will be replenished and you can draw again during the draw period.

Auto Loans

Auto loans are another form of secured installment borrowing, just different from a general personal loan. When you're financing a car, the car itself is the collateral.

How to Compare Personal Loan Options and Find the Right Fit

Compare the annual percentage rate, as it includes the interest rate and other charges, like origination, processing and administrative fees.

You should compare three figures together: the monthly payment, repayment period and total amount payable.

Pay attention to:

• Late payment fees
• Returned payment fees
• Prepayment penalties

If you need money quickly, the time between approval and funding may matter.

Narrow Down Your Choices

• If you have good credit: Compare unsecured fixed-rate loans from online lenders, credit unions and banks.
• If you have poor or limited credit: Consider secured loans, joint applications or installment loans online for bad credit.
• If you're managing several debts: Compare debt consolidation loans against the interest you're currently paying.
• If you need flexibility: A personal line of credit may be worth considering if you expect to borrow more than once.

Conclusion

Getting the right personal loan starts with figuring out why you need to borrow, how much you need, what you can give as collateral and whether you will need to borrow periodically. Compare the APR, repayment plans and what kind of penalties are in place that could end up making the deal more expensive. A good loan should help you out with your financial needs without making the next few years of managing bills any harder than they need to be.