A Personal Loan Company - 5 Tips to Help Your Search

What would you do if you wanted to go on a trip, pay off some bills or improve your home and you didn't have the money? Deciding that a personal loan would be the answer is easy. Choosing where to go for the loan might not be so simple. Consider these five things when looking at companies who offer personal loans.

1. This is business.

No matter where you get your loan—a bank or a finance company—that entity is out to make a buck (or many) off of you. While reputable businesses will be honest about the costs, as is required by law in most cases, they will not let you know whether you should go down the street to save a few hundred dollars.

Along those lines, you should definitely shop around when looking for a personal loan company. While most personal loans do not have the lengthy payback term that a mortgage does, this will still last for a chunk of your life, anywhere from several months to many years. You do not want to be a month into a five-year loan and realize you should have used another personal finance company.

Things to look for when shopping around:

- Interest rate. Personal loan interest rates can differ from 5% to 25%. Over the life of a loan, that's a LOT of money. Make sure you're getting the lowest rate possible.

- Fees. Most businesses make their money on a personal loan in the interest they charge. However, some companies may charge fees and you should be aware of these fees and why they're being charged. Is it to reduce the interest rate, or is it the company just making more money off of you?

- Application processing. How long will it take to process your application? And who makes the decision? If you need money quickly, that will factor into which personal loan company you use.

This doesn't cover everything, there are other things to take into consideration when searching for a personal loan company, but this gives you an initial idea.

2) What is the company's reputation?

You do not want to deal with a fly-by-night operation that makes huge promises, gives you the money then starts charging all sorts of "fees" that have been written into the fine print. Nor do you want one that will mess with your credit. Some questions you should ask before signing with a personal loan company are:

- How long have they been in business? Just because a company is new does not mean it isn't reputable, just as a company that has been in business thirty years isn't necessarily reputable. However, most places that do poor business do not stay around for very long.

- Does the personal loan company have any recommendations on file? Perhaps the company has received some letters they can share from customers that have appreciated the business. While this may be a long shot, it may be worth asking.

- Better yet, do you have any friends that can recommend this company? If someone you know used the personal loan company and had a good experience, chances are you will do well with them too.

As before, this list can be added on to. It should get you thinking about the company's worthiness to have your business. From there, you'll come up with more questions on your own.

3) Does the personal loan company do secured or unsecured loans?

Do you know the difference between these two types of loans?

- A secured loan has some type of collateral that you pledge to give the personal finance company if you don't pay back the loan. In other words, you've "secured" the company's ability to make its money back if you stop making payments because you lose the collateral. In the case of a mortgage, the collateral is a house. With a car loan, you risk losing your car. With a personal loan, you may pledge a valuable piece of jewelry or a collection of some type.

- An unsecured loan is similar to credit card debt. If you do not adhere to the terms of the loan there is no collateral to protect the personal finance company's investment. By the way, that doesn't mean you get away with anything. The company will come after you for an unsecured loan as quickly as for a secured loan.

4) How will your credit standing affect the loan company's desire to do business with you?

Do you have bad credit or no credit at all? Some personal finance companies may not want to even talk to you in this case. There are other companies who would delight in taking your business however, as you're considered a risk, there is a chance they would also charge a ridiculous interest rate.

Another possibility is that the company may require you to have a cosigner on the loan. This is more likely if you're young and have bad or no credit. What this means is that you won't get the money on just your signature saying you'll repay the loan. The cosigner also signs the loan documents—which are legally binding and can be used to collect in a court of law—and agrees to pay back the loan if you default. If a company requires you to have a cosigner, this could be a problem. Many people will not cosign a loan (or don't have the credit necessary to do so), because of the financial responsibility.

5) Do you like them?

Okay, this one may seem silly, but if you dread stepping into the personal loan company's offices, or cannot stand listening to your loan officer's voice, this could cause problems at some point. Whether this is a gut instinct telling you to run away or is just something that happens for no apparent reason, you don't want to deal with any company that makes you uncomfortable. Keep in mind, just because you like someone doesn't mean they will do a good job for you. And someone you don't like may do a great job for you. However, stressing over your interaction with the personal loan company may not be conducive to ensuring you're getting the best deal possible or not being taken advantage of.

Unfortunately, there are no absolutes when dealing with life, and that includes getting a personal loan. However, if you keep these recommendations in mind, ask any questions you have (no matter how dumb they may seem) and verify every step you take, then getting the money you need should be relatively painless.