What are the Terms of a Personal Loan?
The terms of a personal loan may depend on individual needs and the lender, including the loan amount which is usually capped somewhere between $35,000 and $100,000, and the period of repayment, which is normally between 1 and 7 years. The rates offered by lenders on personal loans will vary with individual circumstances: in general the better your credit score, the lower the rates lenders will be prepared to extend. Rates currently offered for personal loans from banks and online lenders range from 4.99% to 36.0% APR but are typically between 10% and 28% APR.
Compare rates and lenders to be clear on your payments in advance:
How to Look into a Personal Loan
If you’re looking to borrow a fixed amount of money, a personal loan might fit the bill. Personal loans are highly customizable depending on your needs, within the limits of the lender’s terms, and are used by individuals for all manner of reasons from funding home improvements or travel, to shifting high-interest credit card payments to lower monthly installments. In order to find the best personal loan for you, you’ll need to consider the terms and rates of personal loans available from lenders based on your individual circumstances.
The rate to look at when comparing personal loans is the APR, which stands for the Annual Percentage Rate. This incorporates not only the interest rate but any other fees the lender may charge you, such as the origination fee which can range from 1% to 6%, calculated on an annual basis. If you only look at the interest rate, you may not be getting the full picture. The APR on personal loans tends to be fixed rate, so would not vary over the duration of the loan and monthly installments remain constant.
The average APR on personal loans in 2018 is between approximately 10% and 28%, although the range offered is very wide with the lowest offered by FreedomPlus at 4.99% APR and the highest at 36.0% APR from Mariner Finance.
The APR offered will vary with individual circumstances, as the lender will take into account the personal loan applicant’s credit score, along with other factors such as debt-to-gross income ratio, loan amount, and loan period, in order to determine the rates extended. Your credit rating has a big impact on the range of typical APRs offered. An applicant with a poor credit score of between 300 and 639 will generally be offered rates between 28.5% and 32% APR. On the other hand, those with excellent credit scores above 720 may have access to much more attractive rates ranging between 10.3% and 12.5% APR.
If you’re looking to reduce your APR, some lenders offer discounts if payments are set up to be automatically debited from your bank account, as this reduces the risk of missed payment, some lenders, such as the online personal finance company SoFi, offer a discount.
Terms of a Personal Loan
Other terms of a personal loan include the loan amount, which is generally a fixed amount provided in a single disbursement by wire transfer, the period over which the loan is repaid, and the repayment schedule. The minimum and maximum amount to which lenders restrict personal loans vary; for example, Wells Fargo offers personal loans between $3,000 to $100,000 whereas Discover’s personal loans range from $2,500 to $35,000. The loan period of personal loans is typically between two and seven years. Typically, repayment of personal loans is made by fixed monthly installments, although some lenders may offer other types of repayment plans.
When and how the lender provides the loan will be set out in the terms of a personal loan; it may be same-day, and generally no more five days following approval. Some lenders may also stipulate that the personal loan may only be used for specific purposes. For example, the online lender Payoff restricts the use of its personal loans to refinancing credit card debt. Many lenders include prepayment penalties; these fees are charged if the loan is paid off before the end of the loan period, as this would result in fewer interest payments made to the lender. Be sure to carefully read through and compare all terms of a personal loan offered, before deciding which is best for you.