How to Find Your Best Personal Loan Companies
Are you in search of a personal loan and looking for the best personal loan company?
You can use a personal loan to pay down high-interest credit card debt, pay for a wedding or vacation or cover emergency expenses.
But how will you know if you’re getting your best deal? And what should you look for in a personal loan? Let our guide help you find your best personal loan companies.
- 4 factors to look at in a personal loan
- Is a personal loan the right choice?
- Finding the right personal loan company
- Best personal loan companies
4 factors to look at in a personal loan
A personal loan can be a smart financial decision for many reasons.
If you are investing in your future — perhaps by paying for college tuition or making capital improvements on your home — a personal loan can help you do so without tapping into savings or using high-interest credit cards.
A personal loan can even help you build your credit profile and increase your credit score by diversifying the types of credit accounts you have.
But if a personal loan is going to help you improve your financial portfolio, you’ll want to make sure you’re taking out a loan from a reputable lender, and that the loan will serve your best interests.
1. Interest rate
The interest rate on a loan is the additional cost you pay to borrow the money. Your interest rate affects the loan’s monthly payment, as well as the total amount you will repay over the life of the loan.
It’s important to understand the difference between the interest rate and the annual percentage rate, or APR, of a loan.
Although the terms are sometimes used interchangeably, they are ultimately different numbers.
The interest rate is a percentage of the total amount borrowed. For instance, if you are borrowing $20,000 for five years at 5% interest, you would pay $2,645 in interest, and your monthly payments would be $377, or $22,645, the total cost of the loan, divided by 60 months.
The APR, on the other hand, factors in the interest rate as well as any additional fees, such as “points” or loan origination fees. Most personal loans do not have fees that are factored into the cost of the loan, but some do.
When you compare interest rates on a loan, make sure you are comparing the same numbers, whether you are looking at the interest rate or the APR.
Getting a better interest rate
While you are shopping around for a lender, you can also take a few steps to make sure you are getting your best interest rate.
First, check your credit score and pull copies of your credit reports from all three major credit bureaus: Experian, Equifax and TransUnion. Checking your own credit will not affect your credit score. (You can also check your credit score using My LendingTree.)
Once you receive your reports, take steps to correct any errors you may find. Make sure you don’t have any late payments that may lower your credit score. If you find that your credit score is heavily damaged, you might consider using a credit repair service.
The best interest rates are usually reserved for borrowers with an excellent credit score of 720 or above. If you aren’t taking out a loan for emergency funds or debt consolidation, you may decide to take a few extra months to reduce your existing balances, which could raise your credit score and help you qualify for a personal loan with a lower interest rate.
2. Secured or unsecured
If your credit is fair (FICO® Score of 580 to 669) or even poor (579 or lower), you might consider a secured personal loan. A secured loan is backed by collateral, reducing the risk to the lender. If you don’t make your payments on time, the lender can seize your assets — whether it’s a car, money in a savings account or a certificate of deposit.
Secured loans are helpful to build your credit if you already have cash reserves in the bank, or to pay for expenses without tapping into your savings.
Many people with a credit score of 640 or above should qualify for an unsecured loan. You can borrow money without putting any of your assets at stake. The lender is using your past credit history as evidence that you will repay the loan.
When you’re evaluating personal loans, read the fine print to determine if there are any fees associated with the loan. Some common fees include loan origination fees, prepayment penalties and late fees.
Loan origination fees: Loan origination fees vary, and are often charged as a percentage of the total loan amount. Rather than paying the fee outright, you may be able to roll the fee into the amount of the loan, so the loan origination fee will be deducted from the total amount of money you receive.
Prepayment penalties: Watch out for loans that charge prepayment penalties. If you have extra cash and decide to pay off your loan early to save on interest charges, a loan with a prepayment penalty will cost you more money.
Late fees: Just like credit cards, many personal loans charge a fee if you make a late payment. You may want to ask about the grace period, which is the amount of time you have to pay the loan after the due date each month before you are charged a fee. If cash flow is an issue, you might also ask about changing your monthly due date.
4. Loan terms
The terms of a personal loan refer to the amount you can borrow, the interest rate, the length of the loan and any fees associated with the loan.
The longer you take to repay a loan, the lower your monthly payments can be, but the more you will pay in interest charges.
It’s important to consider your overall budget to determine the monthly payment you can handle, and find a loan with terms that fit your financial situation.
You can use the LendingTree personal loan calculator to determine what terms you can afford.
Is a personal loan the right choice?
A personal loan might be a good choice if you need emergency cash or want to consolidate your credit card debt with a lower interest rate and one monthly payment.
But, often, there are better options to borrow money, especially if you have a good credit score and strong credit history.
If you are looking to borrow a small amount of money for a short amount of time, such as to pay for emergency car repairs, and you have good or excellent credit, you might consider applying for a credit card with a 0% introductory APR for a term such as 12 to 21 months.
Similarly, if you have high-interest credit card debt but have maintained a good-to-excellent credit score through on-time payments, you can look for a credit card with an introductory 0% APR balance transfer offer.
Just make sure to pay off the credit card before the introductory APR expires, or you could be charged interest retroactively. You can do this by making more than the minimum required payment each month, or make your minimum monthly payments and set aside additional money in a savings account to ensure you can pay off the card before the introductory offer expires.
Also, be aware that many credit cards will begin charging interest, even during the introductory period, if you miss a payment or make a late payment.
If you own a home, you might consider a home equity loan to pay off high-interest debt, cover unexpected expenses or pay for home renovations. A home equity loan is a secured loan, which often means lower interest rates, regardless of your credit score. The danger is that if you don’t pay the loan, the lender can foreclose on your house.
A home equity line of credit, or HELOC, is similar to a home equity loan, because you are borrowing money using your house as collateral. A HELOC gives you access to funds as you need them. You only pay interest on the money you borrow.
Personal loan companies
Getting the best deal on a personal loan is all about finding the right personal loan company for you. LendingTree’s personal loan tool can you give a good idea of the interest rates and terms available based on your credit score, without impacting your credit score.
Here’s a look at a few loan options you may consider if you have good credit, a college degree and are looking to borrow $5,000.
LightStream, an online division of SunTrust Bank, has no origination fee or prepayment penalties. The lender has a Rate Beat program, meaning LightStream will beat competitor rates by 0.10% (terms may apply).
RocketLoans, a Quicken Loans family company, offers a simple and secure online application process. With same-day funding, you can get loan funds quickly. The lender also doesn’t have prepayment penalties.
Payoff targets borrowers who are looking to tackle credit card debt. The lender has no hidden fees and offers free FICO Score updates, allowing borrowers to better manage their finances.
The bottom line
Personal loans vary widely depending on the lender, your credit score and credit history, the loan terms and how much you want to borrow. Using LendingTree’s personal loan tool could make it easy to compare loans at a glance and choose the best lender for you.
By clicking “Get Started”, you may or may not be matched with any lender mentioned in this article. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.