A personal loan is a certain amount of money that can be borrowed to pay for personal expenses. It can also be used to consolidate debts. Typically, a personal loan can be given by lenders, commercial banks, or even a credit union. A personal loan works wellbecause of its flexibility in its borrower’s choice of how it’s used. These unsecured loans require a great credit score on the part of the borrower before lenders will consider giving them out.
Comparing different factorsfor personal loans can be very helpful in getting the best one, at the best rate. This requires you to understand the terms associated with loans so you can make a faircomparison. This article identifies and discusses ten terms that a borrower should be conversant with when comparing personal loans.
- Loan Tenure
The loan tenure represents a period or schedule of monthly repayments by the borrower. It is an essential part of the loan contract. The nature of this term,if breached by the borrower,makes him or her subjectto a penalty. Banks can penalize borrowers for late payments or even the payment that is too early. As per justrightloans.com’s owner, the responsibilityremains with the borrower to choose the best and most convenient period to repay the urgent cashloan—the loan tenure should becomfortable.
Over time, borrowers understand a loan tenure that is suitable for them. There is no standard loan tenure for all loans, as both the lender and the borrower have to agree in writing on a suitable period.
- Monthly Flat Rate
The monthly flat rate is the price of the monthly repayment. It greatly influences the interest owed to lenders as compensation for their services. In most cases, the borrowed amount is equal to the principal. The monthly repayment requires that the principal is paid back with monthly interest. This creates the need for borrowers to choose lenders that offer low rates. Some monthly interestrates are quite high, but an increased loan tenure might be enough to compensatefor it. This term must be considered when comparing personal loans because it isthe amount that will be paid monthly to the lender.
- Annual Percentage Rate (Apr)
One of the most important factors to understand when comparing loans is the annual percentage rate. In the United States, the annual percentage rate expresses the real annual cost of the borrowed funds over the term of a loan. It is the totalof the loan’s rate for a year, expressed as a percent. It isa fantastic indicator of how much a loan will cost the borrower over time. The borrower should always consider the APR when comparing personal loans of banks and other lenders. APRs can vary by huge amounts, so it’s important to be aware of them
- Total Repayment Amount
The loan factors and parameters of lenders usually vary, but borrowers should pay close attention to this and ask what it is before signing anything. The total repaymentis computed by addingthe principal, the total interest, and the handling fee. This parameter easily indicates the total expenditure you will have forthe loan.
- Type of Loan
The financial status and needs of borrowers influence the type of loan suitable to them. The primary types of loans considered by borrowers are installment loansand debt consolidations. The installment loan spreads the principal over several months or years. This creates less financial pressure on the borrower.
Debt consolidation loans are a kind of debt refinancing in which a loan is taken to pay off other loans that are due. This new loan tenure gives the borrower more opportunities and time to prepare repayments. The loans depend a lot on the borrower’s credit-worthiness. Sometimes, borrowers can negotiate a lower rate on their own. Ideally, a borrower should be able to receive lower rates on a debt consolidation loan than on the paid-off loans.
- Credit Score
The credit score of a borrower is crucial in the loan that can be obtained by the borrower. The credit score is a numerical representation of a borrower’s credit reputation. This is often based on anextensive analysis of his or hercredit report. Lenders generally use credit scores to determine the amount of risk involved in lending money to a particular borrower. This is doneto help prevent bad debts.
It is important to note that yourcredit score can be improved. This improvement takes time and comes as a result of certain credit practices, including minimizing debts, making timely repayments, avoiding unnecessary credits, monitoring utilization rates, and so on. Due to the negative effect of late payments on credit scores, it is sometimes necessary to remove the late payments from the record. The record of late payments can be removed by several means, one of which is asking or negotiating with the lender.
The credit score can also be improved by carefully timing your credit applications. For each credit application, a thorough inquiry is carried out t. This inquiry can temporarily lower the credit score. In determining yourcredit score, the scoring bureaustakea lot of factors into consideration, including noting your old debts. Therefore, if your old debts have been repaid, make sure they remain in your credit report. Along credit history gives borrowers a higher chance of securing loans.
The improvement of credit scores might be very tough and demanding, but in the long run, it is beneficial because it helps borrowers get low-interest loans and premium reward credit cards. Also, different lenders make use of different credit scores, so it is paramount to ensure you apply for a loan that fits your credit score.
- Personal Loan Fees
In some parts of the United States, thisis called the loan origination fee. It is a fee paid upfront forprocessing a new loan application. Lenders use the fee to cover the cost of underwriting or verifying a new borrower. It is best for borrowers to avoid loans with these fees.
- Total Interest
Thisis the sum of all the interest in payment over the total tenure of a loan. It is not a complete measure of the cost of credit to the borrower and it is not adjusted for the inflation.
- Approval Time
In most cases, personal loans are taken when the need for money is urgent, which makes the approval time very important incomparing loans. When the approval time takes longer thanthe time in which you need the loan, then it becomes useless. Other times, personal loans are not needed urgently. In such a situation, long approval time might not be a problem. The approval time should always be considered when comparing loans as it needs to function along with the level of urgency. Typically, personal loans with short approval time usually have high rates. Personal loans with longer approval time are usually more secure and come at better rates.
- Eligibility Criteria
This termis quite important in getting personal loans, as it determines the eligibility of borrowers in getting loans. Different banks and different lenders have different criteria for awarding loans. The requirements in the eligibility criteria mean that you should look at several lenders. Borrowers should use a lender who suits their needs—or the one for which they are mosteligible. In some cases, the ineligibility of business owners does not mean they should settle for a worse kind of loan. Sometimes it means that the business owner has to improve on his/her reliabilityuntil eligibility is attained.