How To Compare Personal Loans?

A personal loan is an unsecured loan. This form of loan has a higher interest rate built-in; because there is no security, also known as collateral, the risk of skipping out is greater. Thus, if you have challenges in your credit history, you may have better luck getting a personal loan from the bank where your check is deposited each payday.

Make Sure You Can Make the Payments

Carefully check out the terms of the loan to be sure that

  • the payment won't change
  • the interest rate won't shoot up
  • you can cover the payment each month

Too often, we need a personal loan because we haven't been able to save money in the past. If you can't save, you will need to be honest with yourself that you can make each payment on this loan without risking default or running behind. If you are close enough to the financial edge that you need to take out a personal loan to pay for a vehicle because your credit history is poor, consider reaching out to a local credit union about getting a credit builder loan and counseling instead.

Check Term and Interest

The interest on a personal loan will probably be higher than on a loan that ties the funds to collateral. If you're paying upward of 20% on a credit card, it makes sense to move that debt to a 10% interest rate on a personal loan.

Make sure you also carefully review the terms of this loan. Credit cards will happily let you pay on that debt forever. A personal loan has a limited, fixed term, but the payments will be larger than the minimum on a credit card.

If you've only been paying the minimum on high-interest debt, it's a good idea to put the card away. You may be facing some challenges related to your credit rating. You may be close to maxed on several cards. If you can use the personal loan to pay off any cards, leave them open and let your credit rating come back up. Keep an eye out for 0% APR offers so you can roll all credit card debt onto these cards and set up a payment plan to wipe out the debt within the card terms.

Avoid Hard Pulls On Your Credit

If you're working on credit repair, be aware that paying off your personal loan can actually be hard on your credit score. According to Lantern by SoFi, a personal loan just falls off your credit history when you pay it off, while a credit card with a $0 balance will positively impact your credit score for as long as you keep the card open.

That being said, you will want to compare personal loans with Lantern by SoFi to avoid hard pulls on your credit. A hard pull impacts your credit score, a soft pull does not. Once you are pre-approved, you may well face a hard pull. A pre-approval isn't a guarantee, however.

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