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8 Things You Should Consider Before Taking Out a Personal Loan

8 Things You Should Consider Before Taking Out a Personal Loan

If you’re considering a personal loan, make sure you look into these points first.

Consumer Insite

October 24, 2023
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Disclosure: Our first priority is to provide valuable information to help our readers gain insight into financial topics. Although we receive compensation from some of the brands listed on our site, we only highlight companies we believe can benefit our readers and their financial situations.

Personal loans offer quick access to funds for all sorts of large expenditures. Whether you’re aiming to consolidate high-interest credit card debt or finance significant or unplanned expenses like medical bills, home repairs, or travel, when appropriately utilized, personal loans can help you if you’re in a financial bind. Moreover, they can help boost your credit score if you make timely monthly payments. However, you’re encouraged to research and weigh your options before applying for any kind of loan and signing away.

Here are eight factors you should consider before committing to a personal loan:

1. How does paying off a personal loan work?

Personal loans, otherwise known as installment loans, allow you to borrow a certain amount of money from a lender while paying it off in monthly installments. The life of the loan usually lasts between one and seven years, and in this time, you will pay the loan’s principal, in addition to interest and fees.

INsite:

Interest rates and fees are oftentimes misunderstood or unknown to the person taking out a loan, but they make a tremendous impact on how much you actually get in your loan and how much it will cost you to pay it back. It’s important to verify these numbers in advance.

2. Minimum loan amount

Personal loan amounts range between $ 1,000 and $3,500, depending on the lender. For anything below $1,000, however, you should consider another lending alternative, such as a credit card with a low limit, borrowing from a family or friend, or visiting your local bank or credit union. Many lenders will not loan out less than a thousand dollars, and some won’t for less than $5,000. That’s why it’s best to explore all of your lender options, as you could be missing out on better terms.

SoFi is known for not having many standard fees on their accounts.

3. Interest rates

Interest rates are what determines your total amount payable for the personal loan. Typically, the interest rates for personal loans range between 10% – 28%, depending on factors like inflation and credit demand. However, if you want to get an idea of the actual cost of the loan, you should look at its Annual Percentage Rate (APR). This will give you a clearer picture of the loan terms, such as the interest rate and associated fees.

4. The different fees associated

Loans have different fees associated with taking them out. This includes the origination fee, which is the upfront fee you pay the lender upon getting the loan. Usually, it will be taken out of the loan amount. Additionally, there is the annual percentage rate (APR), which is an annualized rate accounting for the interest rate and origination fee. Ultimately, these fees will depend on your lender, credit, and loan terms.

Connect with the team at Sofi to see if they’re the right fit for you.

5. Choosing the right loan

There are numerous types of loans, many of which can be used to cover certain significant expenses. Of course, whatever you need money for will determine what kind of loan you take out. It’s important to remember that not all personal loans are created equal, and the terms will apply accordingly. Here are some of the most common types of personal loans:

Medical loans

Medical loans can cover a range of medical expenses, particularly elective surgeries like cosmetic enhancements or even things like IVF, dental work, or emergency procedures. It can also be used to consolidate medical debt you already have, pay charges from high deductibles, or in order to pay for an out-of-network provide

Emergency loans

For many, today’s economic climate makes it challenging to build up emergency savings. In fact, less than half of Americans are financially prepared to cover an unexpected expense of more than $1,000. Emergency loans are often unsecured and can be used to pay off vehicle repairs, medical expenses, home repairs, and even job loss.

Home improvement loans

Home renovations, remodeling, new additions, and property improvements are all valid reasons for obtaining a personal loan. Rates on these kinds of loans may vary, and your credit score often determines them. This kind of loan is not to be confused with a home equity loan, which involves borrowing against your home’s current equity and using your home as collateral.

Moving loans

Relocation loans are another unsecured loan that helps cover the costs of moving to a new location, whether it’s for a job, school, family, or another personal circumstance. You can use this loan for things like covering a security deposit, renting a moving truck and movers, travel-related expenses, and even furnishing your new home.

Debt consolidation loans

Using a personal loan for the purpose of debt consolidation is an increasingly popular way for consumers to lower their monthly credit card payments by consolidating the debt into one monthly payment. For many, debt consolidation loans are an excellent way to save money on interest and pay off their credit card debt faster.

6. Your current FICO score

The average credit score in the US is 716, indicating that over the last few years, people have become more responsible with their finances. If this is you, you may qualify for an attractive loan rate. Generally, you’ll need a minimum credit score of 610 to 640 to be eligible for a personal loan. However, your FICO score should be above 690 in order to get the best rates.

7. Comparing loan terms

Comparing loans is an essential step in the personal loan process and involves comparing APRs to see which option will end up costing you more. Moreover, your loan terms vary by the amount of time you take to pay it off. For example, if you choose to pay off your loan in three years versus five years, you’ll end up paying substantially less interest for the loan. Ultimately, it’s up to you if you want to spend less each month and take longer to pay the loan off (paying more total interest overall) or pay more each month and pay your loan off faster (paying less total interest overall).

8. Customer service

When searching for a company to assist you with your personal loan, it’s imperative to ensure that their customer service meets your standards. LendingClub shines in this regard, garnering commendable reviews from satisfied customers across various platforms. As a peer-to-peer lending platform, LendingClub seamlessly connects individuals seeking personal loans with investors eager to fund loans in exchange for potential returns. Their robust customer support infrastructure, encompassing phone assistance, responsive email support, and a comprehensive online help center, stands ready to serve you whenever the need arises.
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      Disclosure

      Our first priority is to provide valuable information to help our readers gain insight into financial topics. Although we receive compensation from some of the brands listed on our site, we only highlight companies we believe can benefit our readers and their financial situations. Consumer Insite has partnered with CardRatings for our coverage of credit card products. Consumer Insite and CardRatings may receive a commission from card issuers.

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      Disclosure

      Our first priority is to provide valuable information to help our readers gain insight into financial topics. Although we receive compensation from some of the brands listed on our site, we only highlight companies we believe can benefit our readers and their financial situations.

      Advertiser Disclosure

      Our first priority is to provide valuable information to help our readers gain insight into financial topics. Although we receive compensation from some of the brands listed on our site, we only highlight companies we believe can benefit our readers and their financial situations.