At a Glance
Once you’ve decided a personal loan is the right financial move for your situation, there are a number of features to consider before choosing a lender and applying for a loan. It’s important to compare loans and lenders to find the best one for your needs, and there are a number of factors to take into consideration before making a decision.
Factors to consider when getting a personal loan
Here are the 11 features to compare and factors to consider when shopping and applying for a personal loan:
- Lender options
- Loan amount
- Loan term
- Interest rate
- Minimum credit score
- Payment options
- Speed of funding
- Customer service
- Special promotions
Personal loans can come from different places, including:
- Banks, which typically have higher interest rates and stricter approval requirements but offer flexibility and leniency to existing customers. Those with excellent credit may find they get the best rates with a traditional bank.
- Credit unions allow their members to apply for loans, often with lower interest rates and more flexibility with requirements. Some credit unions will look at factors other than credit score and history, so borrowers with poor credit may still qualify.
- Online lenders are typically the most flexible with application requirements and have the fastest application, approval, and funding since everything is done online.
Most personal loan amounts range from $5,000 to $100,000, but some lenders offer smaller loans depending on the situation and needs. Other lenders cap the personal loan amount at $20,000 or $50,000. Make sure the lender offers the loan amount that you need.
The term is how long you have to repay the loan, and your term can impact your monthly payment. For example, if you have a long term, your monthly payments may be smaller but you’ll be making more payments over time. Shorter terms mean larger monthly payments, but the loan is paid off quicker.
Most personal loan lenders have terms that range between 12-84 months, but having flexibility in how fast you can repay the loan can be beneficial.
Interest rate and annual percentage rate (APR) are important factors to compare when shopping for lenders. Interest rate is the additional rate you’ll pay on the amount you borrow, while APR includes the interest and other fees. The higher the rate, the more you’ll owe over the life of the loan. The lower the rate, the less extra you’ll have to pay over the life of the loan.
Depending on the lender, your credit score and history, and other factors, APR can range from 4.49% to 35.99%.
Also consider whether the interest rate is fixed or variable.
- Fixed interest rates won’t change over time, so your monthly payment will always be the same.
- Variable interest rates can change, either going up or down, so your monthly payments may change and it’s more difficult to budget around.
Fees for personal loans will vary by lender, but a few you may come across include:
- Application fees: Also known as establishment fees, they are charged to process your loan application, though you usually don’t have to pay until you’re approved for the loan. These can range from $150 – $600, but you may be able to get this fee waived with special deals from the lender.
- Monthly or annual fees: Also called account fees, these are ongoing costs you must pay each month or year over the life of the loan. They will either be a flat dollar amount, like $10, or percentage of the total loan, like 1%.
- Prepayment penalties: These fees are charged if you make extra payments toward your loan or pay it off early.
- Late payment fees: You’re only charged these fees if you make a late payment, but knowing the cost just in case can be important.
Minimum credit score
Some lenders have a minimum credit score required to apply for the loan. While some online lenders or others who work with borrowers with poor credit have minimum scores of 560 or 580, most lenders prefer applicants to have scores of 660 or above. The higher your credit score, the more likely that your application will be approved, and you’ll qualify for a low interest rate.
Know your credit score beforehand and make sure you meet the minimum score requirement before applying.
Secured vs. unsecured loan
If you don’t have a great credit score, you may want to explore a lender that offers secured loans. This means you’d supply a form of collateral, which can be an asset like a car, home, investment, or savings account, in order to get the loan. While this can help you get approved, it’s important to repay the loan or you can lose the asset.
Many lenders allow you to get prequalified before applying for the loan. This doesn’t impact your credit score and can estimate:
- If your loan application will be approved
- Your monthly payment
- Your interest rate
- The loan term
This estimate is based on your credit score, income, requested loan amount and term, and other factors. While it can change with your actual loan and isn’t a guarantee, it can help you more accurately compare lenders.
Check to see how the lender will accept payment, such as if you can submit a check or pay online. It can be helpful if the lender does automatic withdrawal, which means they automatically take the loan amount out of your bank account each month. This keeps you from missing a payment.
You should also ask the lender if they have any flexibility in emergency situations, such as allowing you to skip a payment or two. While it’s important to plan ahead as much as possible, financial emergencies happen that can make it difficult to pay your loan on time.
Speed of funding
Check to see how fast you can get approved and have funds deposited. Typically, banks and credit unions take longer, sometimes up to one week, before depositing funds. Online lenders may have immediate application approval and fund the loan within one day. Depending on how fast you need the funds, this could be an important factor.
It’s important to work with a lender who has great customer service so that you can rest assured you’ll be taken care of throughout the process. This includes when researching the lender, applying, and getting your funds. They should be able to answer all your questions and help you with your needs.
Some lenders, like banks and credit unions, have physical branches you can go to in-person for assistance. Others, like online lenders, only have call centers or online chat. If you have a preference in how you get your customer service, this should be a factor.
Do research online to learn what current and previous customers say about the lender and its customer service. It’s critical to trust the lender, and feel confident you’re getting the best deal, support, and advice.
Some lenders may offer waived fees, bonuses, discounts, or other perks to encourage you to apply for that loan. They are usually limited time offers, so keep your eyes out for these deals as they come and go.
What is the minimum amount for a personal loan?
For most lenders, $1,000 to $5,000 is the lowest amount you can borrow, the minimum amount can vary depending on the lender. For example, some lenders may offer an emergency personal loan or small personal loan with an amount of $500 or less, though this isn’t very common.