When you need a personal loan, taking time out of your day to compare rates might seem like a luxury you cannot afford. However, neglecting to do so could be costlier as you might pay more money over the long run.
Fortunately, if your local bank’s interest rates are high or you’re determined to find the best bargain around, you don’t have to settle for paying more than necessary. Here’s how to compare personal loan rates.
What Affects Personal Loan Rates?
A variety of factors might affect the rates you’re offered. This information should help you decide whether a given offer is fair. According to Investopedia, these include the following:
- The amount you borrow
- The collateral you add to the terms
- The duration of the loan
- Your income and amount of other debts
- Your credit score
- Your relationship with the lender
If you offer collateral as part of the loan, you’ll generally get a lower interest rate than you would on an unsecured loan. That’s because the lender would have a backup plan if you do not repay it.
The duration is important because the risk of nonpayment increases with the length of the loan. As such, expect a higher rate if you’re borrowing over a longer period.
You’re probably not surprised that your credit score is involved. A score “above 700 usually suggests good credit management,” according to Experian.
Your relationship with the lender is important because some banks and credit unions offer special consideration on personal loans for existing customers. Both the number of accounts you have and how long you have been a customer or member could be factors.
Some factors are beyond your control. For example, the Federal Reserve interest rate policies definitely have an impact, and loan demand of the local market might have an impact. Remember these factors as you shop for a personal loan.
Comparing Personal Loan Rates
Comparing personal loan rates can help you find the best available offer. You have several options.
A new and useful Lending Tree tool allows you to compare quotes from multiple lenders. As an example, suppose you want a $10,000 personal loan for credit card consolidation in New York City. You work full-time and have a “good” credit rating, which is listed as 680 to 719 on the tool.
In this example, the following lenders offered these terms:
At first glance, the 6.48% APR offer seems to be an easy choice. And if you seek the lowest total payment, it is. Your monthly payments would add up to $10,680, which is $8,100 less than the highest amount you’d pay in this example — $18,780, or $313 a month to CircleBack Lending over 60 months.
However, $445 a month might be a little steep if you’re on a tight budget. If that’s the case, one of the other loans might appeal to you given their lower monthly payments.
Meanwhile, if you’re a subprime borrower, The Wall Street Journal advises the following:
- Learning the time period for repayment
- Avoiding short-term financing, when possible, if you doubt that you can pay it off in time
- Finding out the specifics of the approval process
Online loan calculators might help you compare your options. For instance, suppose you like the idea of a low monthly payment on your $10,000 personal loan. Bank A offers a 60-month loan with an annual interest rate of 13%. Bank B offers a 48-month loan at 10%. Which would work better for you?
After entering the data into a Yahoo calculator, you’d learn that Bank A’s loan would cost you an estimated $228 a month while the other loan would cost you around $254 a month. In this case — where your primary goal is to keep your monthly payments down — the former would be the better option.
The Bottom Line
Comparing personal loan rates might help you save money and find the terms that suit your circumstances. Consider taking some time to compare personal loan interest rates to help prevent a case of buyer’s remorse.