LendingTree Academy

9 personal loan hacks from our personal loans expert

Written by

Jonathan McFadden

Posted

October 3, 2019

Kevin Rodriguez’s job is all about giving people options. As a LendingTree director of product management, he ensures customers getting personal loans enjoy a complications-free experience with our marketplace.

He shared a few tips and best practices for taking out personal loans — from how you can use them to eliminate your debt to how you can avoid some big blunders when the money hits your bank account.

Know your reason before you apply

Know why you need the money. Personal loans are lump sums of money that come with fixed interest rates. That means your payment each month never changes.

It also means they’re versatile. You can use a personal loan for almost anything. Some of the most popular reasons include refinancing or consolidating existing debt or using it for home improvement. Some people use it just to get ahead on their bills. Know why you need one before you apply, so you can create a solid plan for covering your expenses and how you’ll pay the loan back.

Know your credit, too

Understanding your own credit situation will give you a more realistic perspective on the loan offers you get. Personal loans are unsecured loans, which means the banks don’t have any collateral to go after if you don’t pay them back (failure to repay your personal loan can damage your credit). That’s why rates on personal loans tend to be higher than mortgages or home equity loans. Rates vary by credit situation and a borrower’s perceived risk to a lender. The good news: there are loans available for really distressed consumers, as well as consumers with excellent credit scores.

Download the LendingTree app to get unlimited access to your credit score, along with recommendations and alerts on how you can improve it.

Don’t go deeper in debt

If you take out a personal loan to eliminate your credit card debt, you shouldn’t then immediately rack up more debt on those same cards just because the loan paid off your balance. In that case, you’d have to pay off both your personal loan and credit cards, putting you in a much worse situation.

Be upfront with lenders

Lenders frown on loan stacking, which means taking out loans with multiple lenders in quick succession (before it shows up on your credit report). You need to be on the up and up with lenders and let them know what loans you’ve taken out. For example, if you tell Lender A you need $3,000 but got $1,000 instead, Lender B may agree to give you the other $2,000 as long as Lender A knows about it.

Strike a balance

You’ll need to establish a balance between the length, or term, of the loan and what you can afford to repay each month. Shorter terms mean higher payments each month, so you’ll need to be able to manage those if you want a faster loan payoff. If you feel the payment’s too high, take a loan with a longer term and contribute more to the principal. That will still help you pay off your loan faster without making you deal with super-high payments month to month.

Speaking of fast loan payoffs…

Don’t feel restricted by the payoff timeline

Personal loans come with a payoff date. That doesn’t mean you have to wait that long. Most lenders don’t levy prepayment penalties if you pay your loan off early. Even if you take out a loan with a higher APR than you prefer, there’s no reason you can’t pay it off early. You’re not locked into the term.

Get prequalified 

A pre-qualification gives you a rough estimate of how much money you could get from a lender. It’s a quick, surface review of your financial and credit situation that will evaluate your personal loan options. Unlike a pre-approval for a mortgage, a pre-qualification is a soft inquiry on your credit report, which means it won’t harm your credit score.

There’s no downside to seeing your options through LendingTree.

Don’t bail if you don’t get what you want the first time

Sometimes, borrowers may want to refinance $10,000 in credit card debt, but they only qualify for a $4,000 personal loan. We see a lot of people bail out because they didn’t get the full amount, but there’s still a benefit to taking the $4,000. You can get a lower interest rate on that first $4,000 and pay it off, while you still have $6,000 remaining on the credit card. It’s not all or nothing when you’re refinancing debt.

Prepare for origination fees

Some lenders charge borrowers fees for creating loans. These origination fees vary by lender: some may charge them, others may not. Some charge flat fees; some charge a percentage of the loan amount. The cost of these fees will be included in the offered APR.

If you’re charged an origination fee, understand that it’s oftentimes deducted from the loan amount. Keep that in mind when you’re looking at how much cash you’re going to get from the loan. If you’re taking out a $10,000 personal loan with a $200 origination fee, then you’re only going to get $9,800 in your bank account.