Unsecured personal loans can be helpful financial tools to help pay for a large expense, consolidate existing debt, or simply give you extra cash when you need it. However, not all personal loans are created equal – and if you don’t pay attention, can actually put you in a worse financial position. With that in mind, we’ve put together a list of questions to ask when searching for a personal loan. And don’t forget – when you need up to $250, Brigit advances can instantly transfer you funds without a credit check, interest, or hidden fees.
1. How much do I need?
You may be approved for amounts above what you actually need or request. While this extra cash can be tempting, keep in mind that larger sums generally come with a higher interest rate and/or longer repayment term. So, when looking for a loan, try to take out only the amount you need.
2. How quickly do I need the money?
Many lenders can send you funds as soon as the same day or next business day, but sometimes it can take longer. It’s important to know when to expect your money before agreeing to the loan. For example, if it’s a weekend or holiday and you need funds sooner, Brigit advances might be a better option. Alternatively, if you’re not in a crunch, check out the Earn Extra section of our app to find ways to boost your income.
3. What monthly payments and repayment terms can I afford?
Some lenders will allow you to choose from a few different repayment options, varying in length (how much time you have to repay the loan) and monthly payment amount. Generally, a lower monthly payment means a longer repayment term and more interest charged overall, and vice versa. If you can, try to opt for higher monthly payments to shorten your repayment lengths and overall interest paid. Most importantly, make sure it’s an amount you can afford to pay.
4. What do I need the money for?
Common uses for personal loans are home improvement, medical expenses, auto repairs, vacation, moving, life events (like weddings and funerals), and debt consolidation. Debt consolidation loans allow you to bundle existing unsecured debt, like other loans or high interest credit cards, into one loan with a single monthly payment. You may even be able to get a lower interest rate or more favorable repayment terms than you had before. If you’re looking for a debt consolidation loan, you may want to consider where the lender is able to send the money. See #5 for more…
5. Where do I want the money sent?
Personal loans are most often sent directly to your bank account. However, if you’re using your loan for debt consolidation, you may want the money sent directly to your other creditors to settle up with them, so all you have to worry about is paying off your new loan. If this is something you’re interested in, make sure to check out lenders’ disbursal options.
6. How could this impact my credit score?
Loans can impact your credit score both when you apply for them, and as you pay them back. Many lenders and credit card companies will do a hard or soft credit check (a.k.a a “credit pull” or “credit inquiry”) as part of the approval process. Soft inquiries don’t affect your credit; hard inquiries can lower your credit score by a few points, but usually don’t have a long term impact. However, multiple hard inquiries in a short period of time can hurt your score. The lesson here: make sure you understand what’s involved in a lender’s review process, and try to limit hard inquiries when possible.
After origination, most lenders report your repayment history to the credit bureaus, which means that paying back loans on time can help increase your credit score. On the other hand, missed or late payments can hurt your credit score. If you’re looking for a tool designed to improve your credit score, check out Brigit’s Credit Builder!
7. What additional fees are involved in this loan offer?
Some lenders charge origination fees, which are deducted from your loan amount before it hits your bank account. Many also charge fees for missed or late payments, so make sure you fully understand the additional charges that may come up, and how to avoid them.
8. What other features or tools does the lender offer?
It’s becoming increasingly common for lenders to offer financial education tools, hardship assistance programs, and more. While not a dealbreaker, these things are always an added benefit and a good indication of the company’s customer focus. Remember, Brigit will always be here with financial education and budgeting tools in our app, blog posts (like this one!), and more when you need it.
9. Which is better: fixed or variable interest rates?
You may see some loan offers with “fixed rates” and others with “variable rates”, but what does that really mean? In short, fixed rates means you pay the same interest rate for the entirety of your loan term, while variable means the interest rate charged on your outstanding balance can change depending on the market. Which is “better” depends on the rate at the time you take out the loan – If the interest rate market is low at that time, but expected to rise, it’s better to take a fixed rate loan.
10. What’s the difference between APR and interest rate?
When viewing loan terms, you might notice that your interest rate is different than your APR (Annual Percentage Rate). APR includes interest, as well as any other fees or charges, so is more accurate when determining total costs. You can use Experian’s APR calculator to help compare loans.
Don’t go it a-loan
Taking out a loan is something you should do thoughtfully, so discuss options with your family or a trusted advisor if you’re not sure which product is right for you. If you’re ready to search for a loan, or just see what options are available, our partner Fiona can help match you with loan offers from their network of top lenders, for free.
Disclaimer: The materials on this page are for informational purposes only and do not constitute legal, financial, or tax advice. We may be compensated when you click on links to our referral partners. With respect to our referral partners, we do not guarantee that you will be presented with offers for any particular types of products or services or that you will meet the approval criteria for any particular offer. We do not warrant products or services offered or presented by our partners. Brigit Credit Builder accounts are secured loans issued by our banking partner Coastal Community Bank, Member FDIC. Brigit does not offer other personal lending products.
