By understanding personal loan interest rates, you can decide if a personal loan is really what you are looking for. In some cases, it is possible to just wait to purchase the item that you planned to purchase with the personal loan. In other cases, the loan is still very much needed, but the individual is able to make a smarter financial decision, based upon the new knowledge that they have gained. This is the purpose of this article – to help you make a smart and educated financial decision about obtaining a personal loan.
How are Personal Loans Different From Other Loans
While not always the case, in many cases, personal loans are unsecured. They can be obtained from credit unions, banks, and financial institutions. They are extended to individuals with good credit as well as bad credit. This wide range of uses, options, and stipulations can often make it difficult to distinguish a set interest rate on personal loans. However, there are a few things that we can determine before applying for a personal loan.Secured vs. Unsecured
In a secured personal loan, you will have to place something of value up for collateral. This can include items like your home or your car. Generally, this is not required in a personal loan. It is, however, an option with some lenders.In a secured loan, you are likely to have a lower interest rate. This is because your lender is assuming a lower risk. Higher risks always mean higher interest rates. So, taking out an unsecured personal loan means that you will have to pay a higher interest rate, in most cases.
Comparing Lenders
Personal loan lenders can be found online, at banks, at credit unions, at payday loan institutions, and through peer-to-peer lenders. Each type of lender will offer a different interest rate. Credit unions and banks often offer a fair interest rate to individuals with good credit. However, those with bad credit are likely to be rejected for a personal loan through a bank or credit union.In a payday loan, you are almost guaranteed approval. Many payday lenders don’t even check your credit information. Instead, they check things like employment history, bank history, and personal references. This means that, as long as you meet income requirements, you can probably get approved. However, you will pay a hefty interest rate for a payday loan. In fact, they are generally the highest interest rate lenders around.
Peer-to-peer lending has recently gained a substantial amount of popularity, and for good reason. In regards to personal loans, they offer some of the most favorable interest rates around. This is because, instead of one lender, you have several. Risk is minimized, allowing you to reap the benefits in the form of a lower interest rate. However, you should be aware that you will have to provide information about why you want the loan and what it will be used for. This is not usually the case with other types of personal loans.
Comparing Your Interest Rates
Once you determine the type of lender you want to use, it is essential that you take the time to compare interest rates. You will find that, even though you are shopping the same type of lender, interest rates will vary from one lender to the next. This can mean extra savings – or spending if you’re not careful – for you.Be careful that you look at more than just the actual interest rate. Look at other parts of the term that will determine how the interest rate affects your overall repayment of the loan. This can include things like the number of months you have to pay on the loan as well as the number of payments you make each month. You should also look very carefully for lenders that charge prepayment penalties. These types of lenders are very popular when it comes to personal loans.
