Personal loans are an excellent way for quick cash without necessarily spending on a huge purchase like a house or car. You can use it for any purpose and can fund different expenses like emergency medical bills or home renovations. However, that doesn’t mean you should rush to any personal loan offer you get.
Understanding the Cost of a Personal Loan
Your income goes to different expenses for your daily life, with a portion of it going to groceries, utility bills, and credit card debt. Since a personal loan will be another financial responsibility, you must determine if your monthly income can still cover your other debts. Thankfully, you can project the partial and total cost of getting a personal loan before applying for one.
If you’re wondering what affects your personal loan’s cost, here are three variables you need to consider:
1. The Borrowed Amount
The base value of any loan will always depend on the borrowed amount. Like any loan, you will receive this value in full to fund financial obligations like paying for renovations or medical expenses. Afterward, you’ll need to pay back your debt in increments according to your repayment timeline and interest rate.
Keep in mind that personal loans have substantially higher interest rates than other loan options. This is because personal loans are more versatile than auto or home loans. For this reason, you should only borrow the money you will use for emergencies to limit the additional overhead costs, which we’ll discuss below.
2. The Interest Rate
What makes or breaks any loan is the interest rate it has. Put simply, higher interest rates will lead to a more expensive repayment value. Your credit score will be responsible for giving you more favorable options with your loan’s cost. A higher credit score should give you lower rates since it will display your credibility as a borrower.
You can maintain a high credit score if you show more consistency and stability as a borrower. This is why your credit score will have an impact on a lender’s trust and the interest rate they’ll offer you. Besides the percent of the rate you’ll get, you also need to consider the repayment timeline to gauge its overall value.
3. The Repayment Terms
While many borrowers tend to focus on the borrowed amount and interest rate, it’s also important to assess the other variables of a personal loan. Keep in mind that a low-interest rate won’t always be the best option for you. For example, low rates over a long period can be significantly more expensive than the alternative. This is why high rates at shorter repayment deadlines aren’t always the worst option to have.
Besides the repayment timeline, different lending companies will have additional fees which could pile up and add to your loan’s cost. For this reason, you should always study your loan offer’s contents when comparing different lenders.
While different lending companies use the same base variables above, that doesn’t mean they all behave and respond appropriately to borrowers. Keep in mind that there’s a wide range of financing opportunities you can choose from, so you shouldn’t rush to any deal in front of you.
If you want to get the best personal loan deals in the market, you need to look for lenders you know you can trust. This is why our lending process for ,personal loans at Parkway Finance, is clear and straightforward to give the transparency you need. Contact us at 205-853-3339 today!