We don’t live in a money society. We live in a credit society. To get even the smallest personal loan, you need a credit score. And how do you get that? Probably from a credit card. Weird, right?
And once you have a credit card, you’re now part of the debt industrial complex. At Well Wallet we’re thinking of ways to disrupt this cycle. More on that to come. In the meantime, here is our take on the personal loan market, along with some traps to avoid. Why a personal loan? Only enough, it’s a tool used to escape credit card debt.
Personal loans can be a good way to quickly consolidate your credit card debt, lower your interest payments and get a fresh start.
There are many lenders available at decent rates, especially if you have good credit. But not all lenders are created equal. And not everyone has the community or the planet’s interest in mind.
How do you know if a personal loan is right for you? Well, if you are carrying credit card debt and you can get a personal loan with a lower interest rate, then that personal loan could reduce payments and help you escape the debt trap.
Below we take a look at the best of the not-so-bad players in the personal loan space. We say “not-so-bad” because none are perfect (surprise, surprise.) Some have good rates, but are owned by big banks and require great credit scores. Others have less competitive rates but are trying to make a bigger difference in the world.
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Know your credit score. The interest rate you pay will depend almost entirely on your credit score. It’s the world we live in today. If you have excellent credit, you could pay 11% APR or lower. With bad credit, you’re looking at 29%.
If you don’t know your credit score, no worries. This tool automatically looks up your credit score for free.
For a quick look at estimated Annual Percentage Rate (APR), check out the table below:
Shop around and research. Once you have your list of loan offers, go to your local community bank and credit unions. Ask about their rates. They may have lower rates, especially for those with lower credit scores.
Check out other options. Before you take on a personal loan, consider these options:
a: See if you qualify for a 0% credit card. Depending on your credit, the 0% introductory rate can last up to a year. This is your cheapest option if you can repay your loan during this time.
b: Add a co-signer. If you can’t qualify for a personal loan on your own, consider adding a co-signer. But remember, you are both on the hook to pay it back.
Watch Out for These Traps
1. Interest Rates – Try to get the lowest rate you can. Secured loans are often less expensive than unsecured loans because the funding provider has recourse to an asset.
2. Repayment flexibility – Make sure there is no penalty for early repayment. Your goal is to pay this loan off as quickly as possible. If you can pay more per month in order to pay it off faster, do this. Just make sure your lender doesn’t charge you for the privilege.
3. Fees and Charges – Compare origination fees and application fees. Sometimes lenders hide information in the fine print and it becomes a surprise at the end. These fees should be clearly outlined and baked into the overall APR.
4. Customer Service – Check out their customer reviews.
5. Length of the Loan – Remember, the shorter the term, the less total interest you will pay. That super low payment attached to a 5-year loan? Sure it looks low, but you will be paying significantly more interest over the life of the loan.
6. Social responsibility score – Is your lender contributing to the destruction or prosperity of the planet? When the data is available, we will provide you with sustainability scores for each lender.
A Quick View at Consumer Friendly Lenders
Here’s a quick view of the top consumer lenders.
Prime lenders offer good rates, unique benefits and great customer service.One possible downside: the best rates are only available to people with good credit scores
A peer-to-peer lending network. Translation: their auction style platform might get you a better rate.
Good option for those who don’t qualify with a traditional lender
Might get charged a different origination fee depending on credit score.
Rates are good, but only with a good credit score.
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