5 Features of Personal Loans to Compare
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You’ve researched a few different financing options and settled on a personal loan, but your work isn’t done yet. The next step is to decide which personal loan is best for you.
Affordability should be a top priority: If one lender offers a lower annual percentage rate, that’s probably the best option. But when you have two or more competitive offers, weigh features of personal loans such as discounts, funding time and payment flexibility to break the tie.
Here are five features to look for when comparing personal loans.
1. No fees
Depending on the lender, your personal loan could come with an origination fee. This charge — usually 1% to 10% of the loan amount — is often subtracted from the loan before you get it, though some lenders may include it in the monthly payments.
You don’t get anything for the fee; it’s just money the lender charges for processing the loan.
An origination fee doesn’t automatically make one loan more expensive than another. Compare APRs, which include the interest rate and upfront fees, to see which loan costs the least.
Some banks and online lenders that work with good- or excellent-credit borrowers (a credit score of 690 or higher) will have zero fees, including late and non-sufficient funds fees.
2. Rate discounts
Rate discounts are small perks that can add up. Many lenders offer to reduce your rate by a small amount — often 0.25 to 0.5 percentage points — if you set up automatic payments.
Other lenders may reduce your rate by a percentage point or more on a debt consolidation loan if you let them directly pay off your debts instead of depositing the money into your bank account. Banks often provide discounts to existing customers.
Pre-qualifying for a personal loan lets you check your rate without hurting your credit score. Pre-qualify with multiple lenders to compare rates and find the best offer.
You could potentially use the rate an online lender quotes you to negotiate a lower rate at your bank, says Tyler Smith, a CFP with BBK Wealth Management in the Indianapolis area.
"Especially if you’re in a position where you have good credit and good payment history, they will do anything that they can to get you to borrow money," he says.
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3. Fast funding
Personal loans can help you cover urgent expenses, like a roof repair, because they’re typically funded in under a week — and sometimes even faster.
For instance, online lender LightStream says applications submitted before 2:30 p.m. ET on a business day with all the necessary documentation may be approved and funded the same day. Other lenders can approve and fund a loan within another day or two.
A tip to keep things moving: Gather documents required for a personal loan, like W-2s, pay stubs and proof of address, before you start an application.
4. Payment flexibility
Your loan’s repayment term factors into the size of your monthly payment. A longer term can result in lower monthly payments but more interest paid overall. Use a personal loan calculator to see how different loan terms affect the monthly payment.
Choose a timeline that gives you affordable monthly payments while still keeping interest costs low. Some lenders let you repay a loan in three or five years, while others offer terms from two to seven years.
On the other hand, a lender may let you flex payments to meet your needs during repayment. For example, a lender may let you move your payment date throughout the life of the loan, which can be helpful if you change jobs and have a new payday. Other lenders let borrowers pause or lower their payments during a financial hardship.
5. Customer experience
Customer experience isn’t as easy to quantify as origination fees and rate discounts. However, gauging how things will go once you have the loan could save you from future headaches.
Choosing a lender that lets you set up automatic payments or link your account to a budgeting app could minimize some of the hassles of managing personal loan payments.
Subjective reviews from friends and previous customers and objective online reviews can surface issues you may not see before you borrow.
Find out what problems other borrowers have encountered by searching for the lender in the Consumer Financial Protection Bureau’s complaint database or Better Business Bureau website.
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