Personal Loan Example
Amount you borrow APR Loan Term Monthly Payments Total you will Pay
$8,000 Excellent credit 5% 48 months $184.23 $8,843.25
$8,000 Good credit 10% 48 months $202.90 $9,739.23
$8,000 Average credit 20% 48 months $243.44 $11,685.26
$8,000 Bad credit 36% 48 months $316.62 $15,197.87
You can see from this simple example how your APR can cost you a lot of money. Don’t let the convenience of an unsecured personal loan lead you into higher financial debt.
Refinance Loan Examples
Now let’s compare that same $8,000 cash in the pocket through an auto refinance loan that will have a lower APR for a secured loan.
Auto Refinance Loan
The amount you borrow APR Loan Term Monthly Payments Total you will Pay
$8,000 Excellent credit 2.2% 48 months $174.26 $8,364.49
$8,000 Good credit 3.5% 48 months $178.85 $8,584.70
$8,000 Average credit 6.3% 48 months $188.98 $9,071.16
$8,000 Bad credit 12% 48 months $210.67 $10,112.19
Your credit profile and the lender’s loan terms will determine your APR, and that is why it is important to shop around for the right loan. Small personal loans should only be used as a last resort if you do not have enough equity in your car loan to cover the debt you need to pay down.
As in the example of the young mom, combining a personal loan and a refinance loan can give you more money than you have equity. This is an alternative to committing to a long-term personal loan with high interest and high monthly payments.
Qualifications For a Personal Loan
Money lenders and their requirements can be very different. Some lenders choose to offer the absolute lowest APR personal loan rates for minimal profit. These lenders and credit unions will have strict guidelines and will not offer loans to those with average, slow or poor credit.
On the other hand, most lenders will offer good rates to people with good credit and charge high-interest rates to those with poor credit. Many will pay more for a personal loan than they should because it is an unsecured loan and carries a bigger risk to the lender.
Don’t Keep a Bad Loan
There may not be a lot you can do about your credit score at this time. But keep in mind that if you have to take a loan with a high-interest rate, you can and should refinance it as soon as your credit improves.
If your credit is not as good as it should be, you can find money lenders who work with bad credit customers. These subprime credit lenders offer better rates for those with low scores because that is their specialty. Other lenders only specialize in personal loans with excellent credit and won’t take chances with high risk loans.
Personal Loan Requirements:
- 18 years of age
- US resident
- Have a steady job history and income
- Have a bank account
- Are not currently in bankruptcy
- An acceptable amount of debt to income ratio
- Most lenders have a minimum term of 36 months
- Must pay an origination fee
What is APR?
When you borrow money, you are charged an interest rate based on the APR. The APR or Annual Percentage Rate is the amount of money you pay in interest during one year or your loan term.
The amount of money you are charged for the time you take to pay back the loan is the loan interest.
Loan companies use APR tables that correspond to your credit score to set the APR for your loan. Your APR rating combined with your personal loan terms determines your monthly interest rate for that loan term.
Fixed Rate vs. Variable Rate Personal Loans
Most Personal Loans are fixed rate, and the payments are a locked in price. However, some lenders offer variable rate loans to make APR they offer more appealing.
Fixed rate loans have a fixed interest rate that will not change through the course of the loan agreement. You will find that your monthly payments are set at the same amount for the entire loan term.
Many loan types such as home mortgages, car loans, student loans as well as personal loans have fixed rates. The advantage is that your payments will not change as the bank’s interest rate goes up or down.
Variable loan rates have adjustable interest rates that are determined by your bank or money lender. As the interest rate changes, so do your payments.
Personal Loans with variable rates are usually offered with a low-interest rate to entice the borrower. Then, after a time they catch back up to the present interest rate. From that point, they will follow the interest rate of the market.
The Best Time To Choose a Variable Interest Loan
The best time for getting a variable interest rate is if the economy is bad and the interest rate is high. When you take out the loan, the interest rate will probably go down and stay down for a time. This prevents you from getting locked into a high fixed rate just because you are getting the personal loan during bad economic times.
If you are getting a personal loan during good economic times and the interest rates are down then you would do good to avoid a variable rate loan. We know how fast the economy can change you would do good to keep a low-interest rate as the changing economy pushes up the APR.
A Better Choice Than Personal Loans
If you need the convenience of personal loans but don’t want the high-interest rate, or you do not want to add another payment to your monthly budget, then you should consider a refinance loan.
Refinancing your auto loan is as easy as applying for a personal loan. Valley Auto Loans works with lenders who can offer you a new loan fast and easy. Our application is simple to fill out from your smartphone and submit online. Best of all, lenders will look over your loan request and pick a loan for you based on your requests.
There is no charge for our services and you are not obligated to except any loan offers you are not happy with. So get that cash you need today to consolidate debt, make a major purchase or whatever you need.