If you're thinking of taking out a personal loan, you probably know that options abound. But where do you start? How do you get the best deal without paying too much or getting in over your head? By looking for the following six features, you'll be on your way to getting the loan you need at the best rate.
Low Interest Rate
Everyone knows they want to get a good interest rate when borrowing money. But what exactly qualifies as a low interest rate?
The truth is, it varies depending on what kind of loan you're applying for and what your credit score is. If you're looking for a used car, you could get an interest rate as low as 2.57% while with the average 30-year home loan you're looking at 3.75%.
When it comes to personal loans, the numbers are a little different. If your credit score is good, the interest rates generally start at 10%. However, if you have excellent credit (anything over 750), you can actually get a much better rate than that, but you may have to do some digging. If you can find a lender that offers less than 10%, jump on it; you'll pay much less over the life of the loan.
If you have less than stellar credit, consider hunting down a lending agency that will allow a co-signor. Often this is all it takes to crunch that interest rate down.
Fixed Interest Rate
This is worth mentioning because it's often overlooked by borrowers, especially if they see they're getting a great interest rate. But it's important to be sure you're getting a loan with a fixed interest rate. Variable interest rates fluctuate with the market, and while it could go down, you still risk being caught up in a monthly payment you can't afford should it rise.
When it comes to your finances, it's advised to get locked into something that you're sure will not change.
Some personal loans are secured. Translation? As the borrower, you essentially allow the lender to take possession of the property you offered as collateral should you default on the loan. This could be anything from your home or car to a CD or stocks.
The good news is that most personal loans are unsecured, which means the lending institution trusts you will pay back the loan without asking for any collateral. If something happens to prevent you from making payments, you don't have to worry about losing your property in the process.
You may have heard this acronym, but do you know what it means? If a bank or lending institution is a member of the Federal Deposit Insurance Corporation, then each depositor is protected up to $250,000 should the bank fail. Not only that, but the FDIC is also responsible for supervising banks and protecting consumers.
In short, when you get a personal loan from an FDIC backed lender, you know that they are taking extra measures to protect you and the money that comes in and out.
No Early Repayment Penalties
Suppose you get back on your feet quickly, or you win the lottery (hey, it could happen!). You certainly want to be able to pay back your loan early without being penalized, right? How much you have to pay depends on the institution's terms, but expect it to be the equivalent of around 1-2 months interest. And typically, the earlier you repay the higher the fees.
Be aware that early repayment penalties might be cleverly disguised as an "early redemption fee," "redemption charge," or a "financial penalty." Either way, do your best to avoid loans that charge you for paying back early.
If you can afford a higher monthly payment, getting a short-term loan can save you a bundle. Suppose you borrow $10,000 for 36 months at 6.8% interest. Once you've paid off the loan, you've spent almost $11,083. That same loan over ten years will cost you $13,810. Imagine shortening the life of the loan to only one year, and you've only spent $372 over what you borrowed. So the shorter the loan, the more you save in the long run.
For more information, contact a company like Union State Bank.