Needless to say, a personal loan is one of the most popular types of loans. The thing is that such loans can be used for any personal needs like covering different expenses or debt consolidation. Demand for such products makes many companies and financial institutions perform personal loans, so there are numerous options for getting one.
Of course, every company/institution provides loans on different conditions so that’s when you need to know where to turn to get the best personal loan. Let us guide you through the most popular places and explain special details and terms you should pay attention to.
A Loan or a Credit Line: Choose What You Want First
The first step worth taking is choosing whether you need a line of credit or a loan. With a personal loan you get a certain amount of money with a strict repayment term and fixed interest rate. In other words, if you’re looking for stability in interest rate and payments then borrowing money in a form of a loan is your option. Also, there’s an opportunity to get a line of credit. It will give you more flexibility, as you will get an access to a certain amount of money you can use partly and when you need.
Repayment frames are also flexible but together with them comes a variable interest rate. That means than in case some fluctuations are happening on a market, interest rate for you line of credit can rise and then you’ll have to pay more.
Peer-to-Peer Lenders vs. Banks
If you’re choosing between peer-to-peer, credit union and bank loans, further information is essential.
P2P loans are quite popular today because they are given out by regular people to other regular people they call “peers”. This industry has significantly grown when big lending companies started using this technique. Peer-to-peer loans are funded by people, so there’s an individual approach where an investor weights all the risks and decides whether an applicant will be approved for a loan or no.
There’s such a term like origination fee – it’s intended to cover expenses connected with credit requests. When many P2P lenders charge it (1-4% of your loan amount), some banks don’t do it at all, so pay special attention. One of the biggest lacks of personal loans provided by banks is that you have to own good or even a stellar credit to get your application approved.
Important Things to Pay Attention to
It’s crucial to know how much exactly you want to borrow because an amount you need will impact the process of choosing a lender. In some occasions, lending companies can offer you better conditions and more suitable terms than big banks, but on the other side, if you’re looking for a $100 000 loan then it makes sense to get your credit in order and turn to a big famous bank.
Loan’s interest rate and term are very important factors to consider. People with excellent credit get loans with 5-6% interest rate while those considered as risky borrowers can be charged up to 40%. Most likely you’re somewhere in the middle, so keep in mind that peer-to-peer lenders have their own methods of risk calculation.
The next important point is duration of a loan. Credit products with 30-60 months in duration are most popular among consumers, but if you need a longer term – shop around, some companies offer repayment terms up to 80 months.
It’s worth keeping in mind that a personal loan is not the only option for borrowing money. If by any reason you can’t obtain it, pay attention at interest-free credit card or a home equity line of credit.