Personal loan

3 ways to avoid being overcharged for a personal loan

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Why pay more than necessary?


Key points

  • Personal loans are a convenient way to borrow money.
  • Although they tend to offer competitive interest rates, you might fall into some pitfalls.

If you need to borrow money, there are a number of ways you can go about it. You might be charging a higher balance on your credit card, especially if you haven’t reached your spending limit yet. But that could mean signing up to pay a ton of interest, not to mention destroying your credit score by having too high a credit utilization rate.

Another option is to take out a home equity loan or line of credit (HELOC). But that only works if you actually own a house, or have a good amount of equity.

That’s why you may find that a personal loan is your best option for borrowing money. With a personal loan, you can borrow for anything, whether it’s paying off a credit card, renovating your home, or starting a business. And, personal loans tend to offer competitive borrowing rates – far more attractive rates than those charged by a credit card.

Also, personal loans tend to close quickly. In some cases, you may have your money in hand within days of applying.

But if you’re going to get a personal loan, it’s important to avoid getting taken for a ride. And if you perform these three key moves, it shouldn’t happen.

1. Shop

Whenever you’re looking to borrow a significant amount of money, whether it’s a mortgage, car loan or otherwise, it’s important to explore your options rather than hitting the first offer. that you receive. Well, the same goes for personal loans. You never know when one lender might have a better deal for you than another, so take some time to do your research before accepting an offer.

2. Check your credit score before applying

Personal loans are unsecured. This means that they are not tied to a specific asset. Rather, qualifying for a personal loan — and getting a great rate — will depend on how reliable a borrower a lender thinks you are.

That’s why it’s important to check your credit score before applying for a personal loan. A lower score could result in a higher interest rate on a personal loan because your lender takes on more risk. But if you see that your score needs improving, you might decide not to apply for a loan until you can improve it.

3. Know the fees

Just as fees (called closing costs) come into play when you sign a mortgage, you can also expect to pay them to fund a personal loan. Be sure to ask what these fees will entail. If they are particularly high, you may want to work with another lender.

For context, with a personal loan, you really shouldn’t incur fees that exceed 6% of the amount you’re borrowing. And it’s not uncommon to take advantage of lower fees in the range of 1% to 2%, depending on your lender.

A personal loan can be an affordable and convenient way to borrow. Just be sure to avoid these pitfalls that could easily overcharge you.

The Ascent’s Best Personal Loans for 2022

Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.