Taking out a personal loan is a lot easier than in times past, however, consumers should still be wary of the details in any loan contract. Furthermore, it is very easy to miss out on a great deal simply because of not knowing the information necessary to make good decisions. Ultimately, even in this time when fast and easy loan processing can guarantee funding in 24 hours, researching what is available can save consumers a lot of money in interest over the long run.
The great news is that finding a low interest personal loan is not difficult for consumers simply because of the different avenues available. In addition to your traditional credit unions and banks, the online bank is another more popular way to seek a personal loan. Even with the access, though, consumers should still take the buyer-beware approach to signing a personal loan.
Continue reading to find out more about all the factors to consider before taking out a loan.
Funding Sources
While funding typically comes from banks, other financing institutions can help fund your loan. These marketplace lenders offer competitive interest rates, and consumers with really good credit get approved quickly. These online sources offer low-interest rates, and while the market is still new, it is a fast way to get funding.
Importance Of A Credit Report
Like the credit card, personal loans require a credit history and a proven record of being a good credit risk. Things to pay attention to when taking out a personal loan include the number of existing accounts that are open, the payment history, and any late payments. The credit report is significant in determining risk, but it also determines the interest rate at which the money is borrowed.
Borrowers with delinquencies and charge-offs, or not paying back on a loan, will find higher interest rates, and that is if the loan is approved. Conversely, applicants with a reliable track record of paying their accounts can be guaranteed a low-interest rate. Either way, your credit report is a glimpse of your financial picture, and even in the day of quick approvals, can weigh heavily in determining the type of loan available to you.
Interest Rate
The interest rate is simply the amount the financing institution charges to lend you the money. Things to keep in mind related to interest include the types of interest-bearing accounts you might encounter. Fixed interest rates do not change throughout the life of the loan, and variable rates fluctuate depending on the market. While there are advantages of one over the other, those looking at the variable interest rate should be wary of a rate that is very low to begin with but increases later on down the line, as this increase could drastically increase the monthly payment.
Debt-To-Income Ratio
The debt-to-income ratio determines whether you have enough money to pay your other obligations, in addition to the loan. This amount is determined by looking at all of the debts listed in the application and then reviewing your credit report. Financial advisors have different percentages that are the limit on whether or not a person can realistically pay back the loan, and this ratio is usually determined by the lending institution.
Fees And Other Charges
Many personal loan programs also have surcharges and fees associated with the loan. Some programs include an origination fee for opening the loan, and with online outfits, you might encounter programs that assess a fee for existing balances at the end of the month. Finally, some loan programs charge fees for paying off the loan early.
Factors To Consider
These are just a few considerations when seeking out a personal loan. Because of the sheer numbers of institutions today, consumers can participate in a number of loan programs. The great thing, though, is that this competition has made financing accessible to consumers from all incomes.
