How to Compare Personal Loan Offers

Start with APR, Not Monthly Payment

A common mistake is choosing a loan based solely on the lowest monthly payment. A longer repayment term may reduce your monthly payment but significantly increase the total amount you repay. Always compare the APR and the total repayment amount across offers.

Key Factors to Compare

1. APR (Annual Percentage Rate) The APR reflects the yearly cost of borrowing, including the interest rate and most fees. Use it as your primary comparison tool.

2. Origination Fee Many personal loans charge an origination fee of 1% to 10% of the loan amount. This fee is often deducted from your loan proceeds, meaning you receive less than the full amount. Check whether the fee is included in the APR.

3. Repayment Term Loan terms commonly range from 12 to 84 months. Shorter terms mean higher monthly payments but lower total interest. Longer terms lower the monthly payment but increase total cost.

4. Monthly Payment Confirm that the monthly payment fits your budget without crowding out essential expenses like housing, utilities, and food.

5. Total Repayment Amount Add the monthly payment times the number of months. This is what you will actually pay in total for the loan.

6. Prepayment Penalty Some lenders charge a fee if you pay off your loan early. If you expect to pay ahead of schedule, look for loans without this penalty.

7. Late Payment Fees Review the consequences of missing a payment. Late fees vary widely and can add to your cost.

Questions to Ask Before Signing

• Is the interest rate fixed or variable?
• Are there any fees not reflected in the APR?
• What happens if I miss a payment?
• Can I make extra payments without a penalty?
• Is the lender licensed in my state?

This article is for educational purposes only and does not constitute financial advice.