NEW YORK, NY / ACCESSWIRE / December 9, 2024 / Dozens of traditional banks, credit unions, and online lenders offer personal loans. There are also websites where prospective borrowers can submit one inquiry and in return see multiple personal loan offers from a variety of different lenders. Sorting through those can be overwhelming if the borrower doesn't know what to look for. Here's a list of what to compare and how to do it.
1. Interest rate and APR
The interest rate is not the same as APR. The "annual percentage rate" includes all costs associated with the loan summarized in one number, including fees and interest. It's best to compare interest rates and APR separately because it could reveal that a low-interest-rate personal loan could still be more expensive than one with a higher interest rate.
2. The need for security/collateral
A secured loan is a personal loan that requires collateral from the borrower. An excellent example of this is an auto loan where the car acts as collateral until the loan is paid off. Collateral is also known as security, so a personal loan that requires collateral is called a "secured loan." Check all loan offers to see if collateral is required on any of them.
3. Origination, early repayment, and monthly fees
There are several fees that a lender can charge, including the monthly fee to manage the loan. The origination fee is built into the loan's closing costs, but the borrower may need to read the "fine print" to see it. An early repayment fee is a penalty for paying the loan off early. Read the loan terms carefully to find details on these or any other loan fees.
4. Term of the loan
The "term" of the loan is the amount of time the borrower has to pay it back. Personal loans typically have a term of anywhere from six to 60 months. Monthly payments and interest rates are generally fixed throughout the term. It may seem appealing to "stretch it out" and take a longer term, but the borrower may end up paying more in total interest and fees.
5. Amount of monthly payment
This is an item that really depends on the individual borrower's financial condition. The borrower needs to be able to afford the monthly payment, so the payment amount is important. When comparing loans, taking on a slightly higher monthly payment could result in significant savings in the total amount over the life of the loan when considering how much is paid in interest and fees. This should be considered along with affordability when evaluating which loan is best.
6. Total payout amount
The "total payout" amount is the amount of money the borrower will end up paying if they accept the personal loan offer and pay it back according to the conditions laid out in the loan agreement. This factor takes all the other factors listed here into account. That includes the interest rate, APR, fees, and the term. It does not account for an early loan payoff. That's a separate calculation.
The Bottom Line
Several options are available to most prospective borrowers looking for a personal loan. Compare options by checking the interest rate and APR, whether the lender requires collateral, the fees being charged, the term of the loan, the amount of the monthly payment, and the total amount it will cost to pay off the loan under the conditions in the loan agreement.
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