How to Compare Personal Loans From Different Lenders

When you're shopping for a personal loan, the most important factors to consider include the annual percentage rate (APR), any potential fees, the loan term or length, and whether the lender requires a certain minimum credit score. Let's take a deeper dive into what to look for as you compare personal loans—and review some of the best providers of them.

What to Look for When Comparing Personal Loans

Personal loans can vary heavily from one lender to another, and any given lender may offer a variety of loan products with different rates and other provisions. Here are the key things to focus on during your search.

Annual Percentage Rate (APR)

One of the most important features to consider when comparing personal loans is the annual percentage rate, or APR. This is the interest rate you'll pay, including any applicable fees. The higher the APR, the greater the overall cost of the loan.

Fixed vs. Variable Rate

Many personal loans come with fixed interest rates, but some have rates that can change over time. With a variable rate, there's a chance that your interest rate could shoot higher before your loan is paid off. If you want stability in your budget, nail down a fixed rate. If you're more interested in getting a lower initial rate or think interest rates will fall, a variable rate can make sense—but remember the risks.

Loan Term or Length

Look at how long the repayment term is. It's common to see personal loans with repayment periods of between two and five years. However, some lenders offer longer repayment terms, including ones of up to seven or 10 years. A longer repayment term might mean a lower monthly payment, but you could end up spending more overall due to the length of time you'll be paying interest.

Conversely, a shorter repayment term might come with a higher monthly obligation, but you could be out of debt sooner—and save money in interest. Balance your needs and consider your budget so you can choose a repayment term that works for you.

Borrowing Amount Range

Some banks and other lenders will let you borrow as little as $500 or $1,000, while others may require that you borrow at least $2,000—or even $5,000. If you only need a small amount, borrowing more than that can be needlessly expensive in terms of interest. On the other hand, if you need considerably more money, look for a lender that can accommodate you.

Minimum Credit Score Required

Sometimes it's less about what you prefer and more about the lender's criteria. For example, some lenders only offer loans to people with credit scores of at least 660. Other lenders might allow you to borrow even if your credit score is below 500. However, to get the best rates, you will likely need a credit score of at least 670 or higher. Not every lender lists their minimum score, so calling or emailing to find out before you apply can be a time saver.

If you don't already know your credit score, it's available free of charge from many banks, credit card companies, and free online sources.

Decision Time and Funding Time

Ask how long it takes to receive a decision on your application and when you'll receive your funds if you're approved. If you need money fast, look for a lender that can provide a decision in a few minutes (as many online lenders can) and can deposit your money as soon as the following business day. The faster you need the money, the more you'll need to narrow down your choices.

Loan Fees

Be sure to review all the fees you might have to pay. This includes origination fees as well as prepayment penalties, late fees, and returned payment fees, among others. Some lenders won't charge these types of fees, which can make their loans more attractive. Additionally, if you have good credit, you might be able to work with lenders that don't charge origination fees.

Collateral

If you're concerned that your credit score or income is going to make it difficult for you to qualify for a regular personal loan, it might make sense to look for a lender that will allow you to put up collateral. This is known as a secured personal loan.

Other Features

Certain other features can make a loan more attractive. For example, you might look for a lender that offers a rate discount for autopay or some other action on your part. An extra-long repayment term might also make sense if your loan purpose requires a large amount, or you might want a lender that doesn't charge prepayment penalties. Lenders that offer the opportunity to use a co-borrower or co-signer might also be a good option if you expect to have a hard time getting a loan by yourself.

What to Do Before Applying for a Personal Loan

Before you apply for a personal loan, it's a wise idea to get your finances in order and have a clear understanding of where you stand. Here are some things to do before you take the step to apply for a personal loan:

• Check your credit score: Knowing your credit score and the range it falls into (from "poor" to "excellent") can help you better determine which loans you might qualify for. For example, it might not make sense to send an application to a lender that only accepts excellent credit if your score is below 650.
• Have a clear picture of your financial situation: Take a hard look at your budget and how much you can reasonably expect to repay each month. Be realistic about whether you'll be able to repay the loan with ease. Additionally, consider how you might free up money in your budget to make extra payments and get out of debt sooner.
• Find a co-borrower or co-signer if necessary: If you discover that you might not qualify for a loan on your own, consider looking for a co-borrower or co-signer. This is someone who has good credit and income and could qualify for the loan and help you get better terms. However, they must also trust you, since they will be assuming at least partial responsibility for the loan.
• Consider using collateral: Think about what valuable assets you could use as collateral. You may be able to get more favorable terms if lenders know they have recourse should you fail to pay.
• Weigh alternatives to borrowing: Before going into debt, look at other options. This can include asking family and friends for help, figuring out a way to increase your income, or even using a portion of your emergency fund if you have one.
  

Finding the Best Personal Loan

When comparing different loans from different lenders, you'll want to look at several key factors. The best loan for you will offer the right combination of them. This chart shows some of the best recent offers from major lenders. Investopedia also publishes a regularly updated list of the best personal loans available.

The Bottom Line

When you compare personal loans, start by considering your needs and financial situation. Figure out how much you need to borrow, how much time you might need to repay the loan, and how much you can afford to pay each month. Once you clearly understand your situation, you can begin comparing loans to find the best possible deal for your circumstances.