5 Features to Look For in the Personal Loan
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5 Things to Look for in an Personal loan
When deciding between various low-cost personal loan offers, look at features like discounts and customer support.
By Annie Millerbernd Lead Writer • Personal loans, “buy now, pay later” loans, cash advance apps Annie Millerbernd is a NerdWallet authority in personal loans. Before joining NerdWallet in the year 2019 she was an editor for news in California and Texas as well as an expert in digital content at USAA. Annie’s work has been mentioned by the media and has been included on The Associated Press, USA Today and MarketWatch. She’s also been featured in New York magazine, and was featured as a guest on the NerdWallet’s “Smart Money” podcast, as well as local radio and TV. She’s based at Austin, Texas.
Oct 26, 2021
Written by Kim Lowe Lead Assigning Editor Consumer loans Kim Lowe leads the personal loans editorial team. She joined NerdWallet following 15 years of of managing the content on MSN.com which included food, health and travel. Her first job was as a writer for publications that covered the mortgage food, restaurant and supermarket industries. Kim earned an undergraduate degree in journalism at The University of Iowa and a Master of Business Administration from the University of Washington.
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You’ve scoured a number of financing options and settled on the personal loan However, the work isn’t done yet. Next step would be to decide which lender can make you the most attractive deal.
Affordableness should be a primary goal: If one bank has a unique annually-percentage rate it’s probably the best option. However, if you’re faced with two or more competitive offers, weigh the advantages of special features like discounts, financing time and payment flexibility to break the tie.
Here are five aspects to consider when looking at personal loans.
Application and prepayment fees are rare with personal loans However, you might have to pay an origination charge. The fee — typically from 1% to 10% of the loan amount — is often taken off of the loan before you get it, however, a lender could include it in monthly payment, says Jovan Johnson, an Atlanta-area accredited financial advisor. There is nothing you get in exchange for this fee. It’s simply money that the lender is charging to process the loan.
A fee for origination doesn’t automatically make the loan the most expensive, Johnson says. , which include the interest rate and other fees, to determine which loan costs the least.
Some online lenders who are able to work with good or excellent-credit borrowers (690 or higher FICO) have no fees, including late and nonsufficient funds charges.
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Rate discounts are usually small perks that can add up. Some lenders will lower the rate by a tiny amount — often 0.25 up to 0.5 percentage points — in the event that you make automatic payments.
Other lenders could reduce your rate by one per cent or so for the debt consolidation loan when you allow them to immediately pay for your debts, instead of transferring the funds to you.
Banks typically offer discounts to their customers who are already customers, specifically those with a large amount of funds in a savings or investment account, states Tyler Smith, a CFP who works for BBK Wealth Management, a bank in the Indianapolis region.
You can assess your rate without harming your credit score, but it’s more frequent with online lenders than banks. You could utilize the rate you were quoted through an online loan provider to get a better rate from your bank, Smith says.
“Especially if you’re in a situation in which you have good credit and good payment history, they will do anything that they can to get you to borrow cash,” he says.
Find out if you’re pre-qualified for a personal loan and not impacting your credit score
Simply answer a few questions to receive customized rate estimates from several lenders.
Personal loans can be used to cover emergencies, such as a roof repair, because they’re typically funded in under an entire week — and often, even quicker.
Online lender LightStream states that applications made prior to 2:30 p.m. ET on a weekday, with all the necessary documentation may be funded and approved the same day. Other lenders could be able to approve and fund a loan within the next day or two, claims Alvin Carlos, a Washington, D.C.-based CFP with District Capital Management.
“If, let’s say, you’re required to pay for the medical bill that’s due in the next day, certain lenders will provide you with the cash as early as one day later,” Carlos says.
A suggestion to keep things moving such as W-2s, pay stubs and proof of address prior to you begin an application.
Flexibility of payment
The term of your loan’s repayment is incorporated into the amount of your monthly payment. The longer the term, the lower monthly payments but more interest paid overall, Johnson says.
Select a timeframe that will give the ability to pay for your monthly expenses in a reasonable amount while maintaining interest rates at a low, he says. Some lenders let you pay back a loan in the three to five-year period, whereas others provide terms ranging from the two- and seven-year range.
Johnson suggests taking it a step further by asking your lender what is the procedure in case the job you’re working on is terminated or run into an emergency situation and have to miss a payment or two.
“With any loan that you apply for, you must to know the ‘what-ifs,'” Johnson says. “Will they cooperate with you? Are they willing to extend the loan without charge or upcharge?”
Marcus from Goldman Sachs lets borrowers defer the due date after 12 consecutive on-time payments. SoFi is an online lender. SoFi provides unemployment insurance that places a loan under forbearance.
Customer service isn’t as straightforward to measure as origination charges or rate discounts, however gauging how things will go when you’ve got the loan could help you avoid the future stress.
Autopay doesn’t suffice to ensure that repayment is seamless, Smith says. If you use a or manage your finances differently by choosing a lender who is linked to your loan can save you years of hassle.
“With the amount of technology that is available and the ease to connect it is very important,” he says.
The subjective reviews of friends and previous customers, as well as independent online reviews could reveal issues that you did not be aware of prior to borrowing.
You can learn what other customers think of the lender by looking up complaints at the Consumer Financial Protection Bureau or Better Business Bureau websites.
It’s also a good idea if you have a family member or friend member who’s had a loan previously, Johnson says.
Disclosure: A previous version misstated the requirements for a rate discount. This article has been corrected.
About the writer: Annie Millerbernd is an individual loans writer. Her writing has been featured on The Associated Press and USA Today.
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