Personal Loan Comparison Tips

Selecting the correct loan to meet your needs is about more than just the rate of interest you pay for the deal. By performing a personal loan comparison on the primary four components of your loan, you can determine which loan is the clear choice for you. Without performing a side-by-side comparison, you risk passing on the personal loans that can save you the most money.

Personal Loan Comparison 1: Interest Rate

Although the interest rate is not the only area you should focus on during your personal loan comparison, it is an appropriate place to start. When you’re considering a short-term loan against a long-term loan, be sure to find out what rate of interest the short-term personal loan charges on an annual basis. Once you do the math on your 90-day loan, you may discover an interest rate in excess of 100 percent. Note this on your comparison and continue your analysis of your loan options.

Personal Loan Comparison 2: Loan Term

In general, higher loan amounts come with longer loan terms. When performing your personal loan comparison, you must keep in mind what your goal is with obtaining the loan. Extended terms on personal loans yield lower monthly payments, but mean paying more in interest over the life of the loan. An extended term can also provide you more flexibility if you plan to use an annual bonus or income tax refund to repay a large portion at once.

Personal Loan Comparison 3: Monthly Payments

Accepting the lowest payment option is a natural reaction, but take a deeper look at the personal loans. Your personal loan comparison will show you why the loan has such a reasonable monthly payment. Low payments because of low interest rates are often a good deal, while low payments due to lengthy terms mean paying more money to the lender. If both personal loans have monthly payments you can afford, consider the loan with the higher payments if the rest of the terms are more favorable.

Personal Loan Comparison 4: Total Interest

For many experienced borrowers, the total interest they pay is of critical concern during the personal loan comparison process. Assuming you never make extra payments or late payments, the amount of interest on the contract is the exact amount you’ll pay. Depending on the term and amount of the personal loan, the interest you pay may exceed the amount you borrow. If cutting the total interest is important to you, seek lenders who do not charge a prepayment penalty, allowing you to pay additional principal on the loan at any time.