Compared to an auto loan or mortgage, a personal loan is unique in that it can fulfill a number of uses, beyond just funding a major expense. As a result, personal loans can be an attractive financing option for almost any kind of consumer, thanks to their versatile nature and convenient access.
It’s true, the growth of online lending has made it easier than ever for people to get quick access to funds from accredited lenders. Before diving into the personal loan marketplace, however, it’s important to ask yourself some simple questions to better understand what your funding needs are.
With Fiona, consumers can get matched with personalized loan offers based on their creditworthiness and specific needs.
In light of what you need to know, here are five things everyone should consider before applying for a personal loan.
What Do You Need The Money For?
Consider a personal loan the swiss army knife of lending products. That’s because the majority of online lenders do not require borrowers to use the funds for a specific purpose. And while many people use personal loans to fund a big purchase, it’s not the number one use case. Instead, debt consolidation remains the most common reason consumers obtain personal loans, as a way to combine multiple debts (e.g., credit card debt) into one monthly payment, preferably with a lower interest rate.
A borrower may also require a personal loan to refinance one existing debt, in order to seek a lower interest rate and repay the balance on terms that work better for their unique needs. Of course, personal loans can also be used to fund a number of major purchases, whether it’s a home improvement project, planning for a wedding, having a baby on the way, moving/relocation costs, a dream vacation, or anything else.
How Much Do You Need?
Once you know what the personal loan is intended for, the next question is determining how much you need. Typically, online personal loan providers will offer amounts ranging from $1,000 to $250,000, which accommodates a pretty broad spectrum of funding needs. The loan amount will go a long way in determining what the APR (i.e., interest plus associated costs and fees) will be, along with the monthly payment and length of the loan.
It’s important to know, however, that not every applicant will be eligible for the larger loan amounts. This brings us to our next question, and a rather important one in the personal loan application process.
How is Your Credit Looking?
While personal loan options are available to consumers all across the credit spectrum, applicants with strong credit scores will be better positioned to obtain higher amounts and at more competitive rates. As a result, it’s important to be conscious of your credit score before applying, while also taking all measures possible to boost your score, especially if it’s in the fair-to-poor range.
The most important factors in determining a credit score are payment history and credit utilization ratio. With payment history, a long record of paying bills on time and in full will go a long way. As for credit utilization ratio, it’s also important to keep your credit card debt low, typically below 30% of your available credit line. By maintaining these habits, a consumer will have a lot more financial flexibility when it comes to applying for a personal loan.
Regardless of your credit standing, Fiona can get you matched with offers from top providers all in one convenient place.
How Much Can You Budget for a Monthly Payment?
No matter what your eligibility looks like when applying for a loan, it’s also important to consider how you will repay the debt going forward. The majority of online providers offer fixed interest rates, which means the monthly payment will remain the same over the life of the loan.
Since the monthly payment will be influenced by the loan amount and interest amount, it’s important for a borrower to factor that into their budget and whether they’ll be able to pay in full every month, to avoid the loan going into default.
How Long Will it Take to Repay the Loan?
Finally, going hand in hand with your monthly payment is the loan term. Personal loans can be repaid in various time intervals, typically between 24 to 84 months. Choosing the length of your loan term will hinge on how long it will take you to repay, based on your budget, projected income and other factors.
For example, borrowers interested in reducing their monthly payment can stretch out their loan term for up to seven years. On the other hand, those who choose a shorter term will have a higher monthly payment, but will also save on total interest.
By answering the five questions above, a consumer will have a pretty good idea of what they’re getting into when applying for a personal loan. There may be some other considerations along the way, but luckily, Fiona makes the process as personalized as possible. By filling out a quick and easy form, users can get matched with offers from a variety of top providers.
Still have questions? Fiona has answers.