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How do I Choose the Best Small Personal Loan?

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  • Written By: wiseGEEK Writer
  • Edited By: O. Wallace
  • Last Modified Date: 19 July 2018
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When people are fortunate enough to have several loan offers to compare, they may need criteria for choosing the best small personal loan. Some things that could be used to judge quality or attractiveness of these loans could include potential total loan fees, monthly payment amount, and interest rate. Another area that might be considered is the type of loan offered, since this may be varied too.

Clearly, finances are always going to be an important area of consideration when people evaluate small personal loan deals, and one obvious place to first evaluate this might be in looking at interest rate. The interest rate is the yearly percentage of interest charged. There are easy to use loan calculators online that can determine the dollars paid for varying interest rates and loan terms. Sometimes a lower rate isn’t always as attractive as it seems, though it may be the best choice for others. Length of the loan changes how much interest in dollars is paid, and a shorter-term slightly higher interest rate loan may be cheaper, than one that has a longer repayment term and a lower interest rate.

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Interest rates also need to be compared to any loan fees. Sometimes the small personal loan will have a loan origination fee, either a percentage of amount loaned or a flat dollar fee that gets charged when the loan is first taken out. Other lenders may assess penalties if people pay off their loans sooner, and borrowers should make sure no early repayment fee exists. Some hidden fees could be costs charged for a late payment, and these should be investigated too. With such comparisons, there’s a good chance that a borrower will find the best small personal loan.

Payment amount itself is a useful comparison tool too. A payment should be affordable and it may be necessary to pay a little more over the length of the loan in order to guarantee payments can be made. Though getting the cheapest loan may be good for some, getting an affordable loan that is ultimately a little more expensive could be better for others.

Related to this topic of saving or spending money is the issue of how a loan is structured. The secured loan may entitle the lender to some assets of the borrower if the loan is not paid. Many very small personal loan types are not secured against things such as property. Instead, they’re unsecured. This, however, usually means interest rates are higher. A bank has nothing to repossess if repayment doesn’t occur, and they charge more for this risk.

Of course, the personal loan could also be from a non-traditional lender, like a parent or friend. This could solve some issues and is usually again an unsecured loan. Interest rates may be lower or non-existent. While this may automatically seem like the best loan, it isn’t always. Loans from friends or family may come with emotional strings or a license for the lending person to criticize any of the borrower’s financial decisions. If loan repayment becomes an issue it can rip apart friendships or make family relationships very trying. Sometimes keeping financial business in the business world helps to preserve family relationships, and the best personal loan would be one from a traditional banking institution.

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