When you take out a personal loan, there are a lot of factors to consider: the APR, the length of your loan term, and whether or not it’s fixed or variable. But beyond these details, you must also understand how the lender is grading your credit score. That way, you can decide which type of loan will be right for your situation (and whether or not it’s worth applying).
Understand the factors influencing your rate
Before you compare personal loans online, it’s important to understand the factors that influence the loan’s interest rate. Interest rate is the key factor in determining how much a loan will cost. The higher your interest rate, the more expensive your monthly payments will be.
The interest rate for personal loans is calculated by taking into account:* Credit score (low to high)* Personal debt-to-income ratio (low to high)* Employment history and stability (longer job tenure and stable income)* Other factors such as location and length of time on file with credit agencies.
Narrow down your loan options
A personal loan is a great way to consolidate your debts and make room in your budget for things that matter, like a new smartphone or new kitchen appliances. You can also use it to pay off other loans, including credit cards and car loans.
There are many types of personal loans, and they come with different terms and conditions. For example, some lenders require you to have an active job, while others don’t have any employment requirements at all. Before choosing which one will suit you best, take time to understand the various types available and consider what features are important to you. If you need the loan fast, find such a lender. SoFi advisors say, “Get your loan funded on the same day you’re approved.”
Factor in the true costs of debt
Consider the true costs of debt when determining how much to borrow. When you’re looking at interest rates and fees, make sure to consider payment terms, too. For example, will your loan allow you some flexibility in your monthly payments? A lender might offer longer repayment periods with lower monthly payments—which can seem like a good idea initially—but think about how much it’ll cost in the long term if you have trouble making those payments.
You should also factor in what kind of lifestyle changes this loan will enable or support. Can you pay your bills on time every month? Will you have enough left over for savings? Can you afford rent and other expenses with your new income? If not, consider whether or not it’s worth taking on more debt until things become more stable for you financially.
Read the fine print
Before you sign on the dotted line, it’s crucial that you read through the terms and conditions of any personal loan that you’re considering. This will help ensure that your loan is a good fit for you and your financial goals.
Here are some suggestions for what to look for in this area:
- The interest rate.
- The loan term length (how long before the payment period ends?)
- Whether an origination fee will be charged to your account?
When you’re thinking about finalizing a personal loan, it can be tempting to jump right in and start the process. But it’s essential to think through your options carefully to make an informed decision that works best for you.
