Shorter terms have higher monthly payments, but you pay off the debt more quickly and pay less overall. Longer loan terms typically give you a lower monthly payment, though you pay more in interest over the life of the loan.
This can allow you to more effectively manage your finances and possibly pay down your debt sooner. Many personal loan lenders allow you to choose between varying repayment terms – such as three years or five years to pay the money back. Eligibility requirements vary widely from lender to lender. If you have an unstable credit history or borderline debt-to-income ratio (DTI), continue to shop around, even if the first few lenders tell you no. Whether you can qualify for a personal loan at all is the biggest deal breaker when shopping around. You’ll also want to ensure that the monthly payment amount is manageable for your budget. A lower rate is better, but be careful to make note of anything that might alter a low rate, such as a balloon payment after a few years, excessive origination fees or an adjustable rate. The annual percentage rate is one of the most important aspects of your personal loan, as this determines how expensive it is to borrow the money over time. This variance means that each is best for a different scenario. Although each of the products issued by these four types of lenders goes by the name “personal loan,” they can be very different in terms of qualifications and repayment.
