Select the desired repayment duration, ranging from two to seven years, for returning the borrowed funds. It's important to note that opting for a longer-term loan results in lower monthly payments, but it also entails a higher overall loan cost. To minimize interest expenses and save the most money, it is advisable to choose the shortest repayment term that fits within your financial capacity.
Impact factors to evaluate before applying for a loan
If you're planning to obtain a personal loan, it's important to take into account the following factors in advance to ensure a smooth and hassle-free experience.
Before committing to a personal loan, it is crucial to assess your repayment capability. If you cannot afford to repay the loan, it is not advisable to proceed. Prior to finalizing a loan agreement with a lender, carefully evaluate your monthly budget to determine the extent of your flexibility in accommodating an additional monthly payment.
Consider your debt-to-income ratio (DTI) when determining your ability to take on new debt. DTI compares your income to your existing debts and helps lenders assess affordability. It is recommended to keep your DTI below 35% for a healthy financial balance.
A common fee associated with personal loans is the origination fee. These fees can reach up to 10.00% of the loan amount and are typically deducted from the total loan balance before you receive the funds. For example, if you apply for a $5,000 personal loan with a 5.00% origination fee, the lender will deduct $250 from your loan amount, resulting in $4,750 disbursed to you. To avoid such fees, consider exploring options for no-fee personal loans.
Type of loan
Two common types of personal loans exist: secured and unsecured loans. Unsecured loans do not require borrowers to provide any valuable collateral, such as a savings account or vehicle, as security for the loan.
Conversely, secured loans necessitate collateral, which lenders can claim in the event of non-repayment. Secured loans may be preferable for individuals with lower credit scores who possess valuable collateral they are willing to offer. Since these loans are supported by collateral, they often carry lower interest rates, making them more accessible to borrowers in need of personal loans despite having bad credit.
To qualify for unsecured personal loans, your eligibility hinges on your creditworthiness. Lenders assess multiple factors, including your credit score, income, and credit history, to gauge your ability to repay the loan.
See your free credit score
Your creditworthiness is evaluated based on the activity reflected in your credit reports, which can be accessed at AnnualCreditReport.com. Credit scores, such as the FICO Score and VantageScore, are derived from these reports and take into account:
1. Payment history
2. Outstanding debt
3. Length of credit history
4. Types of credit utilized
5. Recent credit inquiries
These factors collectively contribute to the calculation of your credit score.