51.3% of Americans have taken out a personal loan at some point throughout their life. Taking out a personal loan is a big decision, and you’ve probably put a lot of thought into it.
Finding the best personal loans can be tricky. There are many factors to consider, and we’re here to help you work through them. Keep reading, and by the end of this article, you’ll be able to find the perfect personal loan for you.
Understand Why You Need a Personal Loan
Before you start looking at different types of loans, you need a clear understanding of why you want a personal loan. The majority of people take out personal loans to merge their debt. Others use them for medical expenses, renovations, weddings, starting a business, and more.
Determine how big of a loan you need to take out. This can affect how high of an interest rate and monthly payment you want. When you approach a personal loan distributor, they will want to know how big of a loan you need.
Your Financial Situation
After you know why you want a personal loan, you need to understand your financial situation. The best loan will cater to your financial needs and be the amount you want.
Your credit score will impact who loans to you and what your interest rate will be. The lower your credit score, the higher your interest rate will be. Some lenders limit who they work with based on credit score and income level.
When you set up your loan, you will determine a monthly repayment plan. We recommend studying your finances and knowing how much you can afford to pay back each month.
Longer repayment periods will generally have smaller monthly payments. More interest will build up, especially if you have a higher interest rate.
Shorter repayment periods will have higher monthly payments. But, you won’t have to worry about interest building up over a long time.
Types of Loans
There are six main types of loans. Understanding the different personal loan types can help you find the best loan for your situation.
Unsecured VS Secured
Unsecured personal loans are the most common loan type. There is no collateral like a car or valuables backing your loan. Because it is riskier for lenders, they will charge higher interest rates and fees.
Payment plans last months to years depending on the lender. Your credit score, income, and any other debt you might have will determine your interest rate. The rate can vary between 6% and 36% depending on the lender.
Secured personal loans have collateral attached to them that the lender can take if you fail to pay the loan off. One of the most popular secured loans is mortgages. Since there is collateral, the rates will be lower but you risk losing the collateral if you don’t repay the loan.
Fixed-Rate VS Variable Rate
Many borrowers prefer a fixed-rate loan because your interest and the monthly payment stay the same for the duration of the loan. When you want a consistent payment or want to prevent your rates from changing, we recommend a fixed-rate loan. It can provide ease of mind when markets change.
Variable-rate loans change based on bank rates. This loan is harder to find, and there can be a cap that limits how much your loan can change. This loan is better if you have a short repayment period so it doesn’t change rates many times over the repayment period.
If you are getting a personal loan to consolidate other loans, debt consolidation loans are the best loan option for you. This loan will put different debts into one loan.
This loan can have a lower monthly rate than your individual loans. You can save money by consolidating your loans into one repayment program.
When you can’t qualify for a personal loan on your own, the best loans are co-signed and joint loans. These loans need a second signer that will repay the loan if you can’t.
Your co-signer does not have access to your loan money. If their credit is better than yours, you might be able to get a lower rate and better repayment term on your loans.
Personal Loans to Avoid
As with any industry, there are personal loans you should avoid. These loans can create more debt, ruin your credit, and cause unnecessary levels of stress.
Always try to avoid high-interest rates, even on short-term or small loans. It can be difficult to repay loans with high monthly payments.
Cash advance loans let you borrow $200 or less from your future paycheck for a subscription fee. These loans have access to your bank account and will automatically withdraw money from your account. You should avoid this loan type because it could cause overdrafts.
Pawnshop loans are also bad for personal loans because they can have massive interest rates. These rates are higher than any other personal loan type you can get.
Payday loans are short, high-interest loans paid with your next paycheck. Because of the high rates, the amount you own quickly increases and can trap you in a cycle of debt.
Tips for Picking a Lender
Now that you know why you want the loan and the different loan types, you need to find a lender. Lenders can help you find the best personal loans for you as well.
Always look at reviews from past clients if available. Client reviews will help you understand what the customer experience is like. Googling the lender to look for more reviews can also help you spot any red flags before you work with them.
You should also ask for quotes from many lenders. The more quotes you get, the easier it will be to compare rates. Most people look at three to four different lenders before committing to the best loan option.
We also recommend discussing different types of loans with your lender. You can ask them to walk you through how each loan type could benefit you. Your lender is there to help you find the best loans for your needs, so ask them lots of questions!
Find the Best Personal Loans Today!
The best personal loans will work with your credit, have a good rate, and are easy to manage. Signing up for a personal loan can help you achieve your goals and create the life you want.
Our team at Guarantee Loan Texas wants to help you reach your financial goals and find the perfect personal loan for your needs. We understand that applying for loans is stressful, and we will make the process easy.
Apply online or give us a call at one of our 10 locations in Texas today!