When you need to borrow money, you have many options available to you. How do you sift through the sea of lenders to find the best personal loan for your situation? Luckily, it's not as difficult as maintaining a high credit score. The key is to get to the heart of your need and look closer at the options that fulfill it, without looking at all the financial bells and whistles your lender wants to sell you.
“I want cash flow.”
With overdraft and returned check fees on the rise, seeking a little financial security between paychecks is a smart idea no matter what life situation you have. The best personal loan option for cash flow purposes isn't a traditional loan at all. It's a revolving line of credit. Although credit cards are technically revolving credit lines, think about your non-plastic alternatives and you may end up with a more attractive interest rate.
Personal lines of credit are ideal because you only pay interest on the portion you use, so if you end up not needing any help between paydays, you pay nothing. If you apply for this personal loan with your current bank, you might even be able to link it to your checking account as overdraft protection. Even if your bank doesn't offer the best personal line of credit rate, you'll still potentially save hundreds of dollars in bounced check fees.
“I want to make home improvements.”
Before you apply for a home improvement loan, think through the exact amount of money you need for improvements. The best personal loan option for high dollar improvements is a home equity product if you can take advantage of potential tax deductions, but smaller loans amounts benefit more from a standard personal loan. Depending on your state, there may be a mandatory cooling off period between application and loan closing in addition to a rescission period after the closing. A personal loan will get you the money you need faster and typically with far less paperwork.
“I want to prepare for an event.”
To know the best personal loan product for this, you must first understand the nature of your event. Is it a wedding or other event where you make multiple payments that end on a certain day? Are you preparing for a life event, such as having a baby, where expenses continue over a lengthy period?
If you're paying for a single event, opt for a personal loan with the best interest rate you can get. On the other hand, ongoing expenses from your life event require a line of credit because you really don't know the amount of money you need until you're in the situation.
Even if you just want to buy a car, still consider these questions before rushing into an auto loan application. Just because a lender offers a loan supposedly tailored to your need doesn't mean it is the best personal loan available to you.
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