Everything You Need to Know to Compare Personal Loans

compare-personal-loans

At the end of 2016, total balances on personal loans exceeded $100 billion for the first time ever, according to TransUnion.

A big part of the reason personal loans are so popular? Personal loans make sense for people who want to reduce the interest they pay on their debt. Personal loans can also simplify the process of repaying debt. For example, if you take one loan to pay off multiple credit cards.

If you’re thinking about taking a personal loan, it’s important to compare your options carefully. This step-by-step guide will help.

Factors to consider when you compare loans

Personal loans can be obtained from banks, credit unions, peer-to-peer lending networks, and online lenders. As you compare loans from different lenders, here are a few key points of comparison to think about.

Application process

If convenience and timeliness are important to you, the ease of the application process is one factor to consider when comparing loans.

In most cases, it’s possible to apply online for personal loans. If you’d prefer to apply online, eliminate any lenders who require an in-person visit. If speedy approval matters, avoid applying for loans with lenders who have a long timeline for approving loans. Many financial institutions provide a rough estimate of how long the process will take. The peer-to-peer network Lending Club, for example, indicates it typically takes around a week to get a personal loan approved.

During the application process, it’s common for lenders to give you a pre-approval rate locked in for up to 90-days based on the information you initially provide. However, U.S. News & World Report report indicates rates can change after the final application is submitted. Applicants should ask lenders if the rate could change before the loan application is finalized and whether it is possible for the rate to change after the application has been submitted. Ideally, you can find a lender who isn’t going to change your rate once you have applied.

To make the application process quicker and easier, take some basic steps to get ready to apply for a personal loan. This can include gathering recent pay stubs and income tax returns, making a list of assets and liabilities, and obtaining W-2 forms and 1099 forms showing your wages earned and self-employment income earned in the past two years.

Credit score

When you compare personal loans, it’s essential to make sure you can actually get approved for the loan you’re interested in. One of the biggest factors in determining if you’ll be approved is your credit score.

“Your credit score is going to be extremely important,” said Clint Hayes, a certified financial planner and founder of NextGen Wealth. “The higher the better.”

Most lenders look for a credit score of at least 600 to approve personal loans, according to U.S. News & World Report. “People who qualify for the best financing terms typically have a FICO credit score in the high 700s or better, supported by a history of timely payments on their past and present financial obligations,” Bruce McClary, spokesperson for the National Foundation for Credit Counseling, told Quicken Loans.

Many banks will not disclose specific score guidelines, but do provide estimates of minimum credit scores required for approval. When comparing loans, find out the minimum credit score necessary and avoid applying to any lender who is likely to turn you down based on your credit.

Secured vs. unsecured personal loans

Another key factor when you compare personal loans is if the personal loan is secured or unsecured.

If the loan is unsecured, you do not need to put up collateral to guarantee the loan. That means there is more risk to the lender if you don’t pay and loans are harder to qualify for.

For secured loans, putting up collateral puts you at risk for loss if you can’t pay; however, loans are easier to qualify for because the lender could always take the collateral. You’ll need to decide if you want to take the risk of a secured loan.

Annual percentage rates

The cost of borrowing is one of the most important factors in determining which personal loan you decide to take.

“A good rule of thumb is, if you can get a personal loan from your bank with an interest rate lower than your other debts, it makes sense to consolidate into a personal loan,” according to Hayes.

To compare the costs of borrowing among different personal loan providers, look at annual percentage rates (APRs). An APR is the total interest rate of a loan over a one year period.

APRs vary depending upon your credit. This chart from ValuePenguin shows APRs in 2017.

compare-personal-loans

Data source: ValuePenguin

The lower the APR, the less the personal loan will cost you. This is often the most important deciding factor when you compare personal loans.

Origination fees

Personal loan lenders often charge origination fees for approved loans. Fees could be as low as one percent but could also go up as high as 6 percent. If you borrowed $5,000 and the origination fee was 1 percent, your fee would be $50. For the same loan, if the origination fee was 6 percent, you would pay $300. High origination fees add to the cost of borrowing, so look for a lender offering low or no origination costs.

Repayment terms

One of the big reasons people take personal loans is to make debt repayment simpler. “If you can consolidate three or four higher interest loans into one personal loan, it just makes your life easier,” Hayes said.

While having one payment is convenient, you don’t want to spend more than necessary on repayment of a personal loan. A longer repayment period means you’ll pay more in total interest while a shorter repayment period means you’ll pay off the balance sooner and interest costs will be lower.

If a loan has a longer term but you want to reduce interest costs, you may want to pay off the loan faster. Find out if there are prepayment penalties from any lenders you are considering. If you’re hoping to pay back your loan early, it’s important to make sure you won’t be penalized for doing so.

One of the easiest ways to compare loans is to visit our personal loan marketplace. You can follow these tips to compare personal loans available from this marketplace to see if there is a loan that is right for you.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.