by Christy Bieber | June 13, 2019
Choosing a personal loan lender is a big deal. After all, your lender is going to be in your life for months or years as you repay your loan. Your lender will be responsible for processing your payments and handling customer service issues -- and you’ll be paying your lender hundreds or even thousands of dollars in interest.
You don’t want to end up with the wrong loan or the wrong lender, so it’s important to comparison shop carefully and do your research before choosing which loan servicer is right for you. You also want to watch out for a few key red flags that may suggest the personal loan lender you’ve chosen is not a good fit.
Some personal loan lenders do a good job with handling customer issues, applying payments, and managing loans. Others, on the other hand, are more problematic in terms of the service and support they’re able to provide to customers.
You don’t want to deal with a lender that’s going to give you headaches during the time you’re repaying your loan, so be sure to check that anyone you’re borrowing from hasn’t had tons of major past problems. You can check the Consumer Complaint Database of the Consumer Financial Protection Bureau and search for your lender by name. You can also check your lender’s Better Business Bureau rating and other online consumer reviews.
It’s worth taking the time to make sure you aren’t dealing with a sketchy company that will make your repayment process harder than it needs to be.
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Lenders should be up front about the fees they charge so you can compare total costs from one loan to another. Common fees to watch for include origination fees as well as prepayment penalties and late fees.
There are times it may make sense to accept a lender that charges a higher fee -- such as if you get a lower interest rate. You don’t want to borrow from any lender that doesn’t disclose exactly what you’ll be charged when you get your loan or during the payoff process.
If you get further and further into the application process and surprise fees start showing up in the fine print that weren’t disclosed when you shopped for your loan, it’s time to take a step back and look for a different lender that has a more up-front and transparent pricing policy.
It’s not just the fees you need to be concerned about -- you also need to know the repayment terms and interest rate in order to assess the total cost of your loan. Lenders need to make these terms clear early in the application process so you can effectively comparison shop among different loan products.
One of the most important terms to pay attention to is whether the interest rate on your loan is a fixed rate loan or a variable rate loan. If your loan is a variable rate one, the interest rate can rise during the repayment period. When the rate goes up, your payments and total loan costs go up too.
Variable rate loans often have a lower starting interest rate than fixed rate alternatives. It can sometimes make sense to opt for a variable rate loan. But if the lender you’re considering working with isn’t up front about what financial index the rate is tied to, how often your rate could adjust, or what your maximum rate and payment could be, you need to look for a different loan.
You don’t want to find out late during the loan process -- or after you’ve borrowed -- that the loan could become too expensive for you to pay or that other loan terms are unfavorable. Make sure you understand every detail, and that your lender is willing to answer questions and provide info, before you borrow.
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Most people who borrow money do so because they have a pressing financial need. You may require the personal loan funds for a big purchase or you may need the proceeds from the personal loan to pay off high-interest debt you’re trying to consolidate.
When you need to borrow, you probably don’t want to wait weeks or months for your lender to look at your paperwork, approve your application, and release your funds. Unfortunately, some financial institutions are slower than others. Many online lenders can provide near instant approval and fund your loan within a week or less -- but some local banks or credit unions may be slower.
If you need your loan funds in a timely manner and your lender is taking a long time to move the process along, it may be worth looking for a loan elsewhere.
Different lenders have different maximum and minimum loan amounts. You should avoid a lender that has a minimum above the amount you need to borrow, and should steer clear of lenders whose loan maximum won’t provide the funds you’re looking for.
Lenders may also offer to lend you less than the loan maximum, depending upon your financial situation. Borrowing less than you need may make it impossible to accomplish your goals. If you receive a loan offer from a lender with insufficient funds, consider applying elsewhere with a different lender that might be more generous.
If you are having difficulty dealing with your lender during the application process, it’s a good idea to walk away before you get too deep into the transaction and have to deal with a bad loan servicer for years. If you already have a loan and are having issues with your lender, you may want to consider refinancing to get a new loan with better terms or improved customer service.
With so many online lenders, as well as banks and credit unions offering personal loans, there’s no reason to get stuck with a lender you don’t like. Do your research and shop around to find a loan that’s a good deal and a loan servicer that really earns your business.
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