How to Compare Personal Loan Rates

Knowing how to compare personal loan rates can save you a bundle. The goal of the borrower is to minimize the interest rates paid over the life of the loan. This applies to every type of loan whether it's a personal loan, home loan, or even a mortgage. It applies to a loan that you plan to pay back next week, and to a loan that you plan to pay back in thirty years.

However, personal loans are a little different in that there is almost always more to compare than just the -interest rate. When you compare personal loan rates there are almost always fees associated with the loan. Therefore, if you want to really compare personal loan rates and the cost of borrowing these must also be included.

Compare Personal Loan Rates for A Short Term Loan

Let's compare personal loan rates for a loan that you are taking out for one month. Because the period is short, the lender may add an additional fee on top of the interest rate. Let's look at an example.

You want to borrow $1000 for a period of one month. You compare two lenders. The first lender charges you 2% on the principle because it is a short-term loan. That means you would owe $1000 + $20 for a total of $1020 at the end of the month. The second vendor charges you 3%, which means you would owe $1030 at the end of the month. That means lender number two is offering the better rate.

However, what if the first lender was to sneak in a $40 fee that was paid up front and added directly to the principle? That means your interest rate is no longer 2%. It's actually 6%. Suddenly the lender that appeared to be the cheapest is not the cheapest and lender number two is charging half of what lender number one is.

Compare Personal Loan Rates for A Long Term Loan

Long-term loan rates are more straightforward. There are less likely to be hidden fees associated with them. That means if a lender is charging 6% annually that's what the interest rate will be. There are however a couple of things to watch out for.

That 6% annually may be the advertised rate but many lenders low ball the rate and then increase it based on your credit score. The low rate quotes applies to only a small percentage of individuals with a superior credit score.

Other lenders may include a penalty for paying out the loan early or they may even disallow it. Still others can have additional fees for processing the loan. All things you must watch for.

Lending is competitive. If your credit score is good, don't be afraid to ask your lender to match another lender's rates.

Compare Personal Loan Rates Equally

To compare personal loan rates requires you to understand how interest rates are processed and how any other fees are calculated. When you compare personal loan rates, the key is to know all the costs and then compare based on those numbers. That way you can truly find the best interest rates around.

 

 


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