A personal loan is a form of credit or loan offered by banks, online lending institutions, and other creditors and then repaid in monthly installments until the debt is fully cleared. You may decide to take a personal loan to fulfill your urgent needs, such as buying some household items or to fund your medical needs, among other reasons. Personal loans have become quite popular nowadays due to lenders’ widespread availability, especially online individual loan providers. Almost anyone eligible for a loan can get the amount within a short time using their Smartphone.
Personal loans are preferable to other loans because you are charged lower interest rates, and the money is disbursed much more quickly than other loans, such as a mortgage. You can also use the money for almost any personal need, including paying school fees, settling another debt, paying rent, and many more purposes, unlike in the case of mortgage loans that are specifically meant for a particular purpose of purchasing a home. Even though a particular personal loan provider may appear to be offering you a great deal, always take the time to check what other lenders are offering, and you will be surprised at how this could be financially beneficial to you.
1. Type of Personal Loan
Personal loans are usually unsecured, but there are also secured personal loans. In case of a secured personal loan, you are required to provide some collateral as a guarantee of making the full payment within the specified duration of time. Furthermore, the loan terms of a secured personal loan are much better than the terms for an unsecured personal loan. As such, you can get a higher amount of loan when you choose a secured personal loan, and the interest rate is a bit lower than that of an unsecured personal loan. On the other hand, banks and other lenders do not require any collateral when giving out unsecured personal loans. However, the interest rate of an unsecured personal loan is usually higher, and you cannot get as much money as you would get if you opted for a secured personal loan. You should take some time to understand the type of personal loan and choose the one that suits you based on your current needs and situation.
2. Interest Rate and Repayment Schedule
Different lending institutions charge different amounts of interest for the same amount of personal loan provided to the clients. A particular lender may set the interest rate at around 12 percent, while a second lender may charge 15 percent for the same amount of personal loan. In this case, you would end up paying 1120 dollars and 1150 dollars to the first and second personal loan provider, respectively. In addition, the amount of money that you pay in each installment changes based on the particular lender. Suppose you take a personal loan of 1000 dollars. In that case, you may be expected to pay a monthly installment of 100 dollars by one lender, while the other lender may demand that you pay an initial installment of 500 dollars and 100 dollars each month until you clear the debt. Sometimes, the lender may require you to pay the debt in weekly installments instead of the regular monthly installments. Before choosing the best place to get a personal loan, you must consider these factors to ensure that you get the best deal and that you will comfortably repay the loan.
3. Your Credit Score
Most lending institutions usually review your credit history and credit score to determine the amount of loan you qualify to get. The credit score shows your previous transactions, loans, your reputation of repaying on time, and other financial details. If you have a high credit score, it is most likely that the lender will approve of your loan and offer a higher loan amount. On the other hand, a poor credit score puts you at risk of not being awarded any loan limit because it indicates that you cannot settle new debts. You can improve your credit score by borrowing more loans and ensuring that you repay the same within the given time without failure. The better your credit score, the better your chances of getting a higher loan limit from the lending institutions.
4. Disbursement of Funds
Some lending institutions disburse the funds into your bank account, while others may send it directly to your mobile phone number. Some lenders disburse the funds within minutes, while others may take several days before disbursing the funds. Before applying for a personal loan, it is essential to consider the disbursement time specified by the particular lending institution. For example, if you need the money urgently to cater to emergency needs, it would be advisable to choose a lender who will disburse the funds into your phone number within the shortest time possible.
5. Loan Terms
Since you will be required to pay the loan in monthly installments, it is essential to consider the number of months you will have to make these installments. Loans that are repaid over a long period usually cost more than those repaid over a short duration of time. If you only need a small amount of money, you should choose a shorter loan term to minimize costs.
6. Additional Charges
In most cases, lenders do not charge fees other than the interest amount. However, some lenders charge origination fees or processing fees, which may sometimes be quite a lot. If the lender charges a flat fee of 100 dollars for any loan amount, you receive 100 dollars less than the amount you applied for. However, you are required to repay the total amount. It is more feasible to choose a personal loan provider that does not charge any additional fees for the loan amount because it is cheaper than when you are charged the extra costs.
Considering the above-mentioned factors will help you in selecting the right lending institution from which to apply for a personal loan and ensure that you save unnecessary charges.