Image source: Getty Images
Personal loans can be one of the best ways to borrow. They give you ample flexibility in how you use the funds. And the interest rate is often much lower than those of other common types of debt, such as credit cards.
But if you plan to apply for a personal loan, you don't want to borrow from just any lender. Follow these four tips to find the perfect loan to meet your needs.
1. Consider your financial credentials
Different kinds of personal loan lenders cater to different borrowers. Some work only with those with high credit scores and plenty of income. Others may make loans even to people with low credit -- albeit at higher rates.
It does little good to apply for a personal loan with a lender who won't approve you, even if they have the most competitive rates. Check your credit and review your financial situation so you can apply with lenders catering to borrowers like you.
2. Explore all your borrowing options
Banks, credit unions, and online lenders offer personal loans, and there's no reason not to explore all of these options in your quest for the best rate and terms. It may feel easier to go to a local bank or work with a lender you already have a relationship with, but doing this could mean missing out on the best terms.
3. Get quotes from several lenders
Since rates and terms vary widely among personal loan lenders, it makes sense to shop around before you commit to a financial institution. The more quotes you get, the better your chances of finding the most affordable borrowing option, so aim for a minimum of three to five. Since it's pretty easy to get personal loan quotes online, shop the market and see what's out there.
4. Look at the big picture
Finally, it's important not to focus only on interest rate when looking for the best personal loan lender. Also consider loan terms such as repayment timeline, origination fees, and any prepayment penalties.
A loan may have a lower interest rate, for example, but if it comes with a shorter repayment timeline, the monthly payments would be higher -- although it would be less costly over time. You may prefer a loan with a higher rate but a longer term, so payments fit more easily into your budget.
Also compare fixed-rate loans to other fixed-rate options, and variable-rate loans to other variable-rate options. Fixed-rate loans are more predictable, and your rate won't change over the life of the loan. Variable-rate loans can start with lower rates, but there's more risk, since your borrowing costs could go up.
By shopping with several lenders -- including banks, credit unions, and online lenders -- and considering all the loan terms, you can decide which personal loan is best for your needs.
Top credit card wipes out interest
If you have credit card debt, transferring it to this top balance transfer card can allow you to pay 0% interest for a whopping 18 months!
That's one reason our experts rate this card as a top pick to help get control of your debt. It'll allow you to pay 0% interest on both balance transfers and new purchases during the promotional period, and you'll pay no annual fee.
Read our full review for free and apply in just two minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
