Things to Look for When Getting a
Life happens, and many people rely on personal lending to help them fund important or unexpected expenses that crop up along the way.
Here we’ll discuss a few pointers on what to look for when getting a personal loan. But, first, let’s talk about what a personal loan is and how it is different from other types of flexible financing.
What Is a Personal Loan?
We all know San Francisco isn’t cheap, and we can all use a little help getting by. That’s where getting a personal loan comes in handy!
A personal loan is money you borrow to fund a wide range of expenses. It can be used for important purchases such as a computer or work equipment or to pay for home renovations or the cost of a big city move. It can even help with a once-in-a-lifetime event such as a dream wedding or cover unexpected medical or repair expenses.
But, how is a personal loan different from other loans and lines of credit?
A personal loan is not the same as an open line of credit that you borrow against repeatedly. It is also not intended to cover education or business costs or a car or home purchase. It should not be used to consolidate other debts, such as credit card payments.
A personal loan needs to match your specific needs. That’s why it is important to partner with a lender who understands your individual needs as a member and can help you plan your borrowing as part of your financial life journey.
How Getting a Personal Loan Works
A personal loan is a specific lump sum that is paid to you personally and that you repay over a fixed period at a fixed rate of interest. This allows you to have a consistent monthly payment throughout the life of the loan.
Secured vs. Unsecured
It’s important to look for loans that are unsecured, meaning that you do not need to put up a security guarantee in the form of collateral (such as cash or a fixed asset like a car or boat) in order to qualify.
How Much For How Long?
At San Francisco Federal Credit Union, loans can be for as little as $500 or as much as $50,000, with terms typically from two to 84 months.
In making the “how much and for how long” decision, it really helps to work with a local lender like SFFedCU who knows you and your needs personally, and who can help you match repayments to your likely ability to pay throughout the loan as part of a larger financial plan.
Understanding Interest and APR
Similarly, it’s important to work with a lender who can help you understand the impact of interest charged over the life of your personal loan and its effect on your finances.
Interest is quoted in the form of a fixed annual percentage rate (APR) for the life of the loan. APR is the annual rate charged for borrowing money over the term of the loan as a percentage of the original lump sum borrowed.
For example, if a bank or credit union offers an APR of 7.5% on a loan of $10,000 payable over two years, you would expect to pay a monthly payment of $450 over the life of the loan, including the lump sum repayment and interest, or a total interest payment of $799.90.
APR excludes the compounded cost of interest over the life of the loan. It also excludes the fees that many lenders add to the costs of loans. These can be an unwelcome surprise for many borrowers and can include:
- Loan origination fees
- Credit check fees
- Prepayment fees, and
- Monthly processing fees, and others
It pays to shop around to avoid or minimize fees, especially if they are added to the principal of the loan.
For instance, payday lenders typically charge very high fees on top of their APR to offset high-risk lending practices, and even mainstream lenders often charge hefty prepayment fees to prevent borrowers who are able from paying down loans early.
As a local not-for-profit credit union, SFFedCU charges its members no up-front fees on its personal loans, and no prepayment fees if they can repay loans ahead of schedule.
Personal Loan Requirements
To get a personal loan, you’ll need to fill out an application with your lender, providing personal and financial details that support your ability to repay the loan in a timely manner. This will then be approved or denied by the lender.
Specific requirements depend on the terms of the loan and vary widely among lenders. Typically though, lenders are looking primarily for:
- An acceptable and steady income
- A qualifying credit score, and
- An acceptable debt to income ratio
Committing to Your Financial Wellness
A personal loan is a big commitment, and while you should always shop around for the best deal, it helps if the loan is part of an ongoing relationship. A lender with whom you have a banking relationship will be able to assess how a loan fits into your wider financial wellbeing and can work with you to help you meet the loan requirements.
As a local credit union, SFFedCU is well placed to handle both your day-to-day banking and credit and personal loan needs with convenient, personal services. We offer an easy application process and can often approve loans on the same day.
And we also offer valuable extras, like our Skip-a-Pay option that allows our members to skip one loan repayment per calendar year. That’s valuable money right in your pocket in a tight month! And our Lend-A-Paw personal loan program is designed to help San Francisco pet owners manage unexpected veterinarian and pet medication expenses!