When you decide to take out a personal loan, you want to ensure you get the best deal possible. After all, it’s a big financial decision that’ll have repercussions down the road if not handled properly.
That’s where comparison shopping comes in. By comparing personal loans, you can ensure that you’re getting the best interest rate and terms for your needs. It might not be a fun process, but it’s necessary.
Here are a few tips to keep in mind while comparing personal loan offers.
1. Understand Your Credit Score
Your credit score will play a significant role in loan approval and the interest rate you’ll be offered. That’s why it’s essential to know your credit score before comparing loan offers.
Lenders will want to know how you’ve handled credit in the past, which reflects in your credit score. A higher credit score means a low-risk borrower, which would lead to a lower interest rate on your loan.
If you don’t know your credit score, you can check it on the three major credit reporting bureaus’ websites: Experian, TransUnion, and Equifax. To obtain your credit score, you’ll need to provide some personal information, including your Social Security Number.
2. Get Multiple Quotes
When you begin looking for a personal loan, several lenders offer their services in institutions like credit unions, banks, and online.
Each of these lenders has different terms & conditions and repayment options. So, it can be challenging to determine which one is right for you. For instance, Creditninja.com loan options for borrowers have low-interest rates with manageable monthly payments.
While other lenders might have a higher interest rate, they may be more flexible on the repayment schedule. That’s why it’s essential to get quotes from multiple lenders (as many as possible). Quotes are free, and they give you an idea of the interest rate you’ll be paying, the monthly payment, and the loan term.
Once you have quotes from multiple lenders, it’s time to start comparing them side-by-side. First, look at each quote’s interest rate, monthly payment, and loan term. Then, compare those factors to your financial situation. What can you afford? Are you looking for a long-term or a short-term loan?
3. Get Pre-Approved
Another way to compare loan offers is to get pre-approved. Note that it’s different from getting a quote, which is an estimate of what you may be able to borrow. With pre-approval, on the other hand, the lender has looked at your finances and creditworthiness and decided how much they’re willing to lend you.
However, lenders don’t conduct a hard credit inquiry during the pre-approval process, so your credit score isn’t affected. It’s important because a hard inquiry can temporarily lower your credit score by a few points.
So, look for lenders that allow you to get pre-approved for a loan without making a hard credit inquiry, and compare the offers you receive to find the best deal.
4. Review The Total Interest
While comparing loan offers, be sure to look at the total interest of a loan. Lenders will tell you the total interest you’ll have to pay throughout the loan term, which is different from the interest rate. The interest rate is what you’ll pay each year, and it’s expressed as a percentage of your loan amount. The total interest is the actual dollar amount you’ll pay over the life of the loan.
Let’s say you’re comparing two loans, both of $100,000. Loan A has an interest rate of 5%, while loan B’s interest rate is 6%. But that doesn’t mean loan A is better because you have to compare the total interest payments to see which one costs less.
If you take out loan A, you’ll pay $5,000 each year in interest for 20 years. That’s a total of $100,000 in interest payments. But with loan B, you’ll only have to make interest payments for ten years. That makes loan B’s total interest payments $60,000. So even though loan A has a lower interest rate, it will cost you more in the long run.
So, it’s important to compare the interest rate and the total amount.
5. Read The Fine Print
Don’t forget to read the fine print while comparing your options. Lenders will not tell you everything from the get-go. Therefore, it’s essential to be aware of all the aspects of a loan before signing on the dotted line.
You don’t want to get saddled with a loan with an excessively-high interest rate or unfavorable terms. So, find out all the little details and ensure you get the favorable loan terms you deserve.
When it comes to making big financial decisions, comparing your options is always worth it. The same goes for choosing a personal loan – comparison shopping can save you both time and money in the long run.