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Things To Consider When Looking For A Personal Loan

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What Is A Personal Loan?

Personal Loans are becoming much more popular as a tool for managing debt.  In particular, consumers often seek these types of loans to manage credit card debt.  Other common reasons individuals seek out a personal loan may be emergencies which require quick access to money or home repairs that cannot be put off.  The biggest factor to consider when looking for a Personal Loan is whether or not it makes financial sense for your given situation.  Personal loans often have moderate interest rates.  Rates typically range from a low end of about 5% up to about 15% (or higher if depending on your credit situation).  Credit Card interest rates are often above 20%.  For this reason, consumers may have much to gain by using a personal loan to pay off credit card debt.

One unique aspect with a personal loan is that unlike automobile loans or home mortgages, personal loans are not contingent on some sort of particular purchase.  Personal loans can be used for whatever purpose the approved individual would like to use their loan for.  Just like any other loan, consumers will be required to make minimum payments throughout the life of their loan and will be charged interest on the balance of their loan.

Considerations When Applying and Accepting A Personal Loan

If you are taking out a loan for reasons like home repairs, medical expenses, or other urgent needs, deciding on a personal loan will primarily be a personal decision based on the urgency of the situation.  No one ever wants to be in debt.  If at all possible, other options should be considered.  Some credit cards provide options like credit loans which may be available at a lower rate than your standard APR.  With this said, if your only other option involves dipping in to retirement funds, then a personal loan may be a better idea.

Personal Loan or Borrow From 401k?

Let’s consider the following example. A $10,000 personal loan at an interest rate of 8% over 4 years would cost just under $12,000 once interest is accounted for.  Removing $10,000 from a 401k or comparable retirement savings plans could end up costing you well over $50,000.  In this circumstance, taking a personal loan is a much smarter option than borrowing from your retirement plan.

It may be tempting to borrow from your own money but you need to account for the years of interest your investment will no longer receive.  Even though you will save short term on the interest from the loan, it could still cost you big in the long run.

Personal Loans For Credit Card Debt

Another common reason individuals take out a personal loan is to deal with outstanding credit card debt.  Personal loans can be a smart option if you have a substantial balance that you do not have the ability to pay off in the near term.  The first consideration one should make is whether they can eliminate their debt quickly without taking out a new loan.  If you have savings available to pay off your credit card, this should be the first option to consider.  You may want to compare personal loan options if it is unlikely you will be able to pay off high interest credit card debt.

Let’s consider a second scenario.  An individual has $10,000 of credit card debt at 20% APR.  If this card was paid off in 3 years, you would be paying approximately $375 per month.  This would result in about $3,400 dollars in interest.  A personal loan at 8% for that same 3 year period could result in a payment of about $300 per month.  This loan would result in about $1,250 paid in interest over the life of the loan.  In this scenario, the personal loan would save about $70 per month.  Over the life of the loan, this would result in over $2,000 in savings.

Finding The Right Personal Loan

There are many popular personal loan options and finding the best one for you will ultimately come down to two key aspects. These are the interest rate and the term of your loan.  Depending on your situation, you may be able to pay off your personal loan sooner rather than later which would be an ideal situation for a short term loan (24 months for instance).  If you need longer time and lower monthly payments, you may have to opt for a longer term personal loan (60 months).  Lenders often have specific loan terms they provide.  Consequently, this is the first decision to make and will be solely based on your ability to pay back your loan as fast as possible.

When considering interest rate the process is quite simple.  The lower the rate the better.  Finding the lowest interest rate is the most important thing to do when you are shopping for your loan once after establishing the term of your repayment period.  There are many free sites such as Credit Karma which provide loan options that meet your specific credit profile.  It is worth noting that these are based on who they have relationships with so you may not have a comprehensive list if you go this route.

Finding Loans With Your Local Bank or Credit Union

One smart option that many people overlook in the age of the internet is visiting the bank they do business with.  Oftentimes banks or credit unions provide these services and if you have an existing account you may even qualify for lower interest rates.  Another option is to look for promotional offers as many lending companies provide pre-approval rates without having to endure a hard credit check.  You can check your rate for free and then only complete the application with the lending company that you decide to do business with.

Popular Personal Loan Lenders:

There are hundreds of banks and financial institutions which offer personal loans.  Your loan approval and interest rate will be largely based on your credit score.  It is important to always strive to maintain a spotless credit history.  Applying for any line of credit with bad credit will make the process much more limited in options and your rates will be much less forgiving.  Overall, a personal loans can be a great financial tool when used appropriately but care should be taken to ensure you loan is the right option for you.

Top Credit Card Picks For 2018

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Reviewed Credit Cards From The Major Credit Card Categories

There is no shortage of available options when it comes to selecting a new credit card and such, the first step when looking for a new card needs to be identifying what type of rewards or benefits you desire from your new account.  There are several major types of credit cards:

Cash Back Credit Cards – Cash back cards often have initial sign up bonuses and they provide cash back for your purchases which may or may not depend on rotating categories.  Cash back varies upon the card you select and categories will vary depending on the active selections for the specific card.

Low Interest/Balance Transfer – Balance transfer cards may or may not come with a sign up bonus but they will always come with an introductory interest rate (typically 0%) which allows you to transfer existing credit card debt on to your new account at no interest.

Travel Rewards Cards – Travel Credit Cards provides points or miles which can be used for a variety of rewards such as airline fares or hotel bookings.  Other travel cards are co-branded with specific companies and the rewards earned apply directly for use with the associated company.

Secured Credit Cards – Secured cards are designed for individuals who not have a strong credit history and may not be eligible for other credit cards.  Secured credit cards will require a deposit made by the cardholder which is used as collateral against the credit limit which is allowed.  It is important to note that secured cards do report to credit bureaus and can positively influence consumers with less than great credit.

This list will be updated as necessary new offers and changes are provided throughout the year.

Top Cash Back Credit Cards

Citi Double Cash

  • Earn 1% cash back for all purchases and 1% for paying your bill
  • Sign up bonuses available when spending requirements are met
  • Up to 18 months 0% interest on balance transfers (transfers are not eligible for cash back rewards)
  • No Annual Fee

Bottom Line:  A great all purpose credit credit that does not rely on categories.  All purchases and payment is eligible for up to 2% cash back rewards.

Chase Freedom

  •  $150 sign up bonus for new cardholders when $500 is spent in the first 3 months of opening a new account
  •  1% cash back on all purchases
  • 5% cash back on rotating categories
  • No Annual Fee

Bottom Line:  With an easy to obtain sign up bonus this card is a great cash back option especially if you are able to take advantage of the rotating 5% cash back categories.

Discover IT Cash Back

  •  1% cash back on all purchases
  • Rotating 5% cash back categories including gas, groceries, restaurants, Amazon.com, or wholesale clubs
  •  Free FICO Credit Score

Bottom Line:  A solid choice for cash back however this card does not include a sign up bonus which may make it less attractive to some card seekers.

Top Travel Rewards Credit Cards

Chase Sapphire Preferred

  •  Sign up bonus of 50,000 points once $4,000 is spent in the first 3 months of opening your new account
  •  1 point for every dollar spent, 2 points for each dollar for restaurants or travel
  •  $95 annual fee, no foreign transaction fee

Bottom Line:  A top travel credit option.  One of the best sign up bonuses around however the large spending requirement may be prohibitive, try to time with large purchases which can be paid off immediately to maximize rewards.

Capital One Venture Card

  •  Sign up bonus of 50,000 miles when $3,000 is spent is the first 3 months of opening a new account
  • 2x miles on all purchases and up to 10x miles on select travel purchases
  • $0 intro annual fee, $95 thereafter

Bottom Line:  Another great travel card with one of the top sign up bonuses in the industry.  High spending requirement for bonus should be considered to maximize rewards.

Top Balance Transfer Credit Cards

Amex EveryDay Card

  • 0% interest on for purchases and balance transfer for 15 months
  • This card provides zero cost balance transfers (depending on current offer)
  • Balance Transfers must be made within 60 days of opening new account

Bottom Line:  What sets this card apart is the zero cost fee for balance transfers.  This offer may not be always available but is currently being offered and is why this is our top pick for balance transfer credit cards.  As an added bonus, this card also has a very nice rewards program associated with it as well.

Citi Simplicity Card

  • 0% interest on purchases and balance transfers for 18 months
  • Balance transfer fee of 5%
  • No late fees or annual fees

Bottom Line:  This is a no frills, low APR card which provides a full year and a half of no interest.  The biggest drawback to this card is a lack of a rewards program.

Top Secured Credit Cards

Discover IT Secured Card

  • Refundable security deposit
  • FICO score is provided with each monthly statement
  • Earn cash back and matching cash back provided at the end of your first year

Bottom Line:  This credit card is great for building or rebuilding credit as you are provided with your FICO score monthly allowing you to monitor your credit score.

Capital One Secured Card

  • $200 credit limit available with minimum security deposit of $49
  •  Access to higher credit line for on time payments
  • No annual fee

Bottom Line:  With no annual fee and low deposit requirements this credit card is an attractive offer for individuals who are rebuilding their credit.