- How Much Do You Really Need?
This will depend on the use of the loan. If you plan on using the loan to pay off credit card debt, all that you need to do is add up your balances. If the loan is for something else like a loan repair, you will need to get several quote and nail down a contractor before you can come up with an answer. In any case, make sure that you come up with an accurate answer. It would be unfortunate to take out a loan for too little and it would be equally bad to pay interest on money that you do not really need.
Most personal loans start at around 1000 dollars, so if you need less than that amount, you should likely look to another source such as a low interest credit card. Once you have your number, consider adding a few percent as a buffer. Not much, just 10 percent will likely do so if you were going to borrow 2500 dollars, borrow 2750 dollars.
- Is Your Credit Score Good Enough?
Your credit score will obviously affect how much you pay in interest, so it would be good to know what your score is before you apply. You can then use that to make sure that you are getting the rate that you deserve.
Knowing what your credit looks like may allow you to make a few tweaks as well. If you are just a few points away from a good or excellent rating, waiting a month or two on your personal loan might be a good idea. You can then take the time to improve your score and potentially lower the APR you will eventually pay.
- What Kind Of APR Will You Pay?
The Annual Percentage Rate is the effective interest rate of your loan. It accounts for all loan fees and charges that you pay. Essentially it standardizes all loans so that you can compare apples to apples.
The APR that you will pay will depend greatly on your credit score, so you should be aware of your credit. With a personal loan, if you have fair to good credit you will likely not pay more than 29 percent APR. With bad credit however, your APR could be drastically higher. In any case, your lender must give you the APR of your loan.
- What Will My Loan Term Be?
Most personal loans will have 6 month terms to 5 year terms. Some very low dollar loans may even have terms as little as 3 months. Generally speaking, the longer the loan term is the greater than interest rate. For this reason, you should usually attempt to take out a shorter loan as long as the installment payment is affordable. This could save you hundreds of dollars in extra interest.
- Is The Payment Affordable?
Speaking of payments, what will your payment be and can you afford it? Hopefully you already have a written budget that you can fit the payment into. If not, take the time to put one together. Nothing fancy, simply list out what you spend your money on and then insert the loan payment. Make sure that the new personal loan payment will not put an undue strain on your other finances.
- When Will The Loan Funds Be Dispersed?
Most online lenders can deliver funds within one or two calendar days but some local lenders might take longer. Make sure that you will get the funds when you need them. Also be clear as to how you will be receiving the funds. Some lenders, for example might pay your creditors directly instead of you. This is information you need to know before you sign on a loan.
- Are There Better Options?
Depending on your credit and the intended use of the loan, you may have other options.
If, for example, you need the loan to pay off credit cards, you could secure another card with a promo rate. 6 or more months of reduced interest could help you cut that debt quickly.
Should you need the money for a home repair, consider financing directly with the lender. Many will have their own financing and some will have promo deals as well.
- Is There An Origination Fee
Many lenders will charge a fee at the beginning of the loan. This is usually labeled an origination fee or a document fee. Find out if your loan will have such a fee and how it is charged. If the lender wants 500 dollars on an 8000 dollar loan, for example how are they getting the fee. Will the loan be 8500 dollars or are they taking out the 500 dollars from the loan amount, giving you 7500 dollars?
As you can see, there is a lot to a personal loan. Make sure that you know all of the answers to the questions above before you proceed. Even if you are in a rush to get the money, just a few minutes time can save you time, trouble and perhaps some money.