You have researched a few different financing options and settled on a personal loan, but your work is not done yet. The next step is to decide which lender can give you the best offer.
Affordability should be a top priority: If a lender offers an exceptional annual percentage rate, this is probably the best option. But when you have two or more competing offers, weigh in on special features like discounts, funding times, and payment flexibility to break the tie.
Here are five features to look for when comparing personal loans.
Rate Of Discounts
Rate discounts are usually small allowances that can add up. Many lenders offer to lower your rate by a small amount — often 0.25 to 0.5 percentage points — if you set up automatic payments.
Other lenders may lower your rate on debt consolidation loans by as much as a percentage point or two if you let them pay off your loan directly instead of giving them the money.
Banks often offer discounts for their existing customers, especially those with large amounts in a savings or investment account, says Tyler Smith, a CFP at BBK Wealth Management in the Indianapolis area.
Pre-qualification lets you check your rate without hurting your credit score, but it’s more common at online lenders than banks. Smith says you can use the rate quoted by an online lender to negotiate a lower rate at your bank.
“Especially if you are in a position where you have good credit and a good payment history, they will do whatever they can to get you to borrow money,” he says.
Application and prepayment fees are rare with personal loans, but you may face an origination fee. This fee — typically 1% to 10% of your loan amount — is often deductible before you get the loan, but a lender may include it in the monthly payment, says Jovan Johnson, an Atlanta-area certified financial planner. You get nothing for a fee; It’s just the money the lender charges to process the loan.
An origination fee doesn’t automatically make the loan the most expensive, Johnson says. Compare annual percentage rates, which include interest rates and other fees, to see which loan has the lowest cost.
Some online lenders that work with good- or excellent-credit borrowers (690 or higher FICO) charge zero fees, including late and insufficient funds fees.
The repayment period of your loan affects the size of your monthly payment. Longer periods result in lower monthly payments, but paying more interest overall, Johnson says.
Choose a timeline that gives you affordable monthly payments while keeping interest costs low, he says. Some lenders let you repay the loan in three or five years, while others offer terms of between two and seven years.
Johnson recommends taking flexibility by asking a lender what happens if you lose your job or move into an emergency and need to skip a payment or two.
“As with any loan you apply for, you always need to know the ‘what-if’,” Johnson says. “Will they work with you? Will they extend the loan at no extra charge or extra charge?”
Marcus by Goldman Sachs lets borrowers defer payments after 12 consecutive timely payments. Online lender SoFi offers unemployment protection that keeps the loan in forbearance.
Customer experience isn’t as easy to measure as an origin fee and rate discount, but once you have a loan on how things are going, it can save you future headaches.
Smith says that offering Autopay is no longer enough to make repayment seamless. If you use a budgeting app or manage finances in some other way, choosing a lender that links your loan can save years of hassle.
“With the amount of technology out there, the convenience of adding it is very important,” he says. Subjective reviews from friends and past customers, as well as objective online reviews, can bring up issues that you may not have noticed before borrowing.
You can find out what other lenders think of the lender by reading complaints on the Consumer Financial Protection Bureau or Better Business Bureau websites.
Johnson says it’s even better if you have a friend or family member who has used a lender before. One tip to keep things moving: Gather documents like W-2s, pay stubs, and proof of address before you start applying.
Personal loans can help you cover urgent expenses such as roof repairs, as they are typically funded in less than a week – and sometimes faster.
Online lender Lightstream says applications submitted before 2:30 pm. ET can be approved and funded on the same day of a weekday with all required documents. Other lenders can approve and fund the loan within a day or two, says Alvin Carlos, a Washington, DC-based CFP with District Capital Management.
“If, let’s say, you need to pay a medical bill due tomorrow, some lenders will give you the money as soon as the next day,” says Carlos.