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If you’re considering taking out a personal loan, you probably want to find a way to make your borrowing go as far as possible. Whether you are consolidating debts, paying for a family vacation, purchasing a dream car, or covering a medical bill, it’s essential to shop around so you can find the best loan to match your needs and current circumstances. This will allow you to lower the total cost of your loan costs and pay off your debt with the least amount of hassle. With that in mind, here are eight suggestions that will help you find the best personal loan:
Understand your credit score
First things first, you need to know where your current credit rating stands since this will be one of the critical factors determining the interest rate you will be offered. Your credit score is dependent on a wide number of factors, such as:
- Current income
- Homeowner status
- Payment history
- The current level of existing debt
- History of bankruptcies and defaults
In general, the higher your credit score, the more likely you will be offered a lower rate. If you have a good history of making payments on time and not going over your credit limit, you should have a good chance at securing a loan with reasonable terms.
Decide on how much you need to borrow
Before you start shopping around, you need to put some strong consideration into how much you want to borrow and what the general terms of an ideal loan would look like. In many cases, people make the mistake of asking for more than what they actually need. For example, if the car they wish to buy is $20,000, they may enquire about loans around the $22,000 mark to help cover any unexpected costs or just as a nice cash bonus. However, this adds unnecessary costs to your borrowing, which is why it is highly advised to borrow the least amount possible that will help you meet your goals.
Shop around and compare deals
Carrying out a personal loan comparison is absolutely vital if you want to find the best deal on your borrowing. With the recent increase in the number of personal loan providers, it’s easy to get overwhelmed, especially if this is your first time taking out any form of credit.
Nevertheless, it’s imperative that you take your time during this stage and don’t just get swept away by the first attractive offer that you see. These days, there are tons of different types of loans you can apply for, and it’s your job to find the right one to suit your needs. In general, you need to look out for the advertised APR of the loan, as this will give you an idea of the overall costs of the borrowing (interest and fees). Still, make sure you take the time to read over the terms and conditions before you sign on the dotted line.
Don’t feel like you need to be loyal
Carrying on from the previous point – try not to fall into the trap of staying loyal to your bank (or current loan provider). Unfortunately, it doesn’t pay to be loyal in this industry, so don’t feel as though you are obliged to take out a loan from a provider just because you are already a customer of theirs. You have a better chance at finding a good deal from a lender that’s trying to attract new customers, which could mean a more attractive APR or more flexible terms on your loan.
Consider the term of your loan
One of the most important aspects that you need to consider is the term of your loan (the period in which you agree to pay the loan back). Broadly speaking, the longer the loan, the more interest you will pay. However, the one trade-off here is that longer-term loans come with a lower monthly repayment. As a result, you have to strike the right balance between affordability and cost (interest). If you want to get the best deal, you need to inquire about the loan term that offers the lowest rate, which is typically somewhere between 12-36 months.
Be aware of restrictions
Most providers have eligibility criteria that you need to check before you apply. Sometimes, the advertised interest rate that you will see may only apply to individuals from a particular area, profession, or credit score bracket. Furthermore, many banks place restrictions on what you can do with the loan funds once they hit your account, such as prohibiting gambling or investing.
It’s worth double-checking with the loan provider and being upfront about the purpose of your loan so you can be sure that you won’t run into any obstacles later down the line.
Improve your credit score first
As we touched upon earlier, your credit score is pivotal to your ability to secure a reasonable rate on your loan. If your credit score is low due to poor or non-existent credit history, then you may want to consider building it up first before applying for a personal loan. You might be surprised at how much a few percentage points in APR makes over the long run, which is why it’s worth doing everything you can to boost your score.
Check the early repayment charges
Finally, most loans charge a fee for settling the loan early. This is because the bank will lose its opportunity to earn a profit since the interest is usually spread evenly across all of your monthly payments. As a result, you will typically have to pay an additional fee to close the loan – but don’t worry, it won’t negatively impact your credit score. With that said, if you are planning to pay the loan off early, then it’s worth shopping around to see which providers allow this feature and how much the charge will be.
Final word
Taking out a loan can be an intimidating task, especially if you’re looking to borrow a significant amount of money. However, you must keep your cool and take your time so that you can find the best deal on your borrowing and secure a loan that has the appropriate terms to suit your needs. Remember, your credit score is the most crucial factor when determining the overall cost of your loan, so do what you can to keep it on track (or even improve it) before applying.
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