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Smart Borrowing: Tips for Choosing the Best Personal Loans

Jenna Taubel

Jenna Taubel About The Author

Mar 7, 2024 5:45:00 AM

In recent years, personal loans have become a popular option for people looking to manage unexpected expenses, consolidate debt, or fund major purchases. Personal loans serve as versatile financial tools that you can utilize for many purposes. However, with an a wide variety of loan choices available, selecting the best personal loan and the right lender can feel overwhelming. This guide offers practical tips and insights to help you navigate the personal loan landscape, ensuring you make a choice that helps you meet your financial goals.

Exploring Personal Loans to Find the Best Fitsmart borrowing tips for choosing the best personal loan

A personal loan is a financial product that allows you to borrow money for various personal expenses, from consolidating debt to funding your wedding or vacation, or covering unexpected costs. Unlike specific-purpose loans (like auto loans or mortgages), personal loans are versatile, offering you the flexibility to use the funds as needed. 

Because these loans are flexible, there are many lenders that offer personal loans with a wide variety of interest rates and repayment terms. It's important to understand your options for personal loans before making this financial decision. 

Types of Personal Loan Lenders

Personal loan lenders range from traditional banks and credit unions to online lending platforms. While traditional banks and online lenders offer personal loans, they tend to only extend loans to those with stable credit scores, while credit unions are more likely to lend to someone with less than perfect credit score and history. 

Unlike banks, credit unions are not-for-profit organizations owned by their members. This structure allows them to often offer lower interest rates and better terms on personal loans than their for-profit counterparts. Being member-focused, they often provide more personalized customer service. Credit unions take the time to understand individual members' needs, which can be particularly beneficial for borrowers with unique financial situations or those who might not meet the strict lending criteria of larger banks.

For example, a Rochester, MN school teacher was in need of money to make some much needed home improvements, however she had less-than-perfect credit score. She has already been turned down at two banks, when a co-worker suggested she try a credit union for her personal loan.  After meeting with a  credit union loan advisor and explaining her situation, she was able to secure a personal loan from the credit union.

Types of Personal Loans

Personal loans can play an important role in helping individuals meet their financial goals. Understanding the difference between unsecured and secured loans will allow you to make informed decisions based on your unique financial situations and needs.

The Basics of Unsecured Personal Loans

Unsecured loans are the most common type of personal loan, because they do not require collateral, such as your vehicle or home. This means that if you become unable to make your loan payments, you do not risk losing a personal asset. Without the need for collateral, unsecured loans are granted based on the borrower's creditworthiness, income, and other financial factors. However, it's important to note that unsecured loans often come with higher interest rates, than secured loans, due to this increased risk to the lender. 

The Basics of Secured Personal Loans

Secured loans, on the other hand, require collateral to secure the borrowed amount. This collateral serves as a guarantee for the lender, reducing the risk associated with the loan. Since the loan is secured by collateral, lenders may be more willing to offer higher loan amounts compared to unsecured loans. While credit scores are still considered in the approval process, secured loans may be more accessible to individuals with lower credit scores due to the presence of collateral.

Comparing Personal Loan Rates

It is important to note that the personal loan rate and terms you qualify for will vary significantly depending on factors such as:

  • credit score
  • income
  • loan amount
  • length of loan 
Comparing your interest rate on a personal loan is important as it directly impacts your monthly payment. Typically, if you have a higher credit score you'll be offered lower rates. You can also, obtain lower rates by using a secured loan vs an unsecure personal loan. Also, the longer your loan term is the higher your rate will be. 

Making the Most of a Personal Loan Calculator

Using a personal loan calculator can be incredibly helpful in estimating your monthly payments and total interest. Get started by entering the loan amount, term, and interest rate, you can effectively plan for what your personal loan payments could be.

What is a Good Personal Loan Payment Amount for you?




Tips for Finding Your Best Personal Loan Fit

Now that we've reviewed some basic information about personal loans, it's time to explore tips to help you select the best personal loan for your  goals. Whether your seeking a personal loan for debt consolidation or home improvement projects, by following these tips, you can start comparing personal loan options and find the best fit for your financial needs.

Check Your Credit Score: Before applying for a personal loan check your credit score. Your credit score significantly influences the interest rates and loan terms you qualify for. A higher credit score can lead to more favorable loan terms, including lower interest rates. 

Compare Interest Rates: Interest rates can vary significantly among lenders. Take the time to compare interest rates from different financial institutions, online lenders, and credit unions. 

Consider Loan Terms: Evaluate the loan terms offered by various lenders. This includes the repayment period or the length of the loan. While longer loan terms may result in lower monthly payments, they can also lead to higher overall interest costs. Choose a loan term that aligns with your financial goals and budget.

Understand Fees and Charges: In addition to interest rates, be aware of any fees or charges associated with the personal loan. Common fees include origination fees, prepayment penalties, and late payment fees. Understanding these costs upfront will help you assess the total cost of the loan and avoid any surprises.

Explore Lender Reputation: Research the reputation of potential lenders by reading customer reviews, checking online forums, and seeking recommendations. A trustworthy and reputable lender will provide transparent information, fair terms, and excellent customer service. Consider lenders with a positive track record in the industry. This will help you avoid lending scams and ensure a positive loan experience.

Evaluate Repayment Flexibility: Look for lenders that offer flexibility in repayment options. Some lenders may allow you to adjust your monthly payments or provide options for deferment in case of financial hardship. Understanding the flexibility in repayment terms ensures that the loan aligns with your financial circumstances.

Review the Fine Print: Carefully review the terms and conditions of the personal loan agreement. Pay attention to any hidden clauses, penalties, or conditions that may impact your ability to repay the loan. Understanding the fine print ensures that you are aware of all aspects of the loan before committing.Tips for Choosing the Best Personal Loan For Your Needs, first alliance credit union

How to Apply for a Personal Loan

Choosing the best personal loan requires careful consideration of various factors, from understanding different types of lenders and loans to calculating payments and comparing rates. Remember, the right loan should fit comfortably within your budget, help you meet your goals without becoming a burden. Take the time to research and compare your options for a financially sound decision. 

If you want help navigating the application process for personal loans, we recommend scheduling a free consultation with one of our experienced Lending Advisors. We're always happy to help you and offer any guidance we can. 

Start Your Personal Loan Application Now. 

Apply Today

We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.