What to check on a personal loan
Almost everyone compares loans by the monthly payment, which is exactly the easiest number to manipulate. There are three things to compare instead, and none of them takes more than a minute.
The payment is the worst number to compare
A low payment can mean a good rate, or it can mean a long term hiding a bad one. From a distance the two offers look alike; measured by total interest, they look nothing alike.
The number that actually compares is what you'll pay in total above what you borrowed. Run each offer through the personal loan calculator with its rate and term, and compare total interest. It's the one comparison that can't be dressed up.
What the term does
Stretching the term lowers the payment and raises total interest, always. There's no exception: every additional month is another month of interest on the remaining balance.
That doesn't mean the short term is always right. A payment you can't sustain leads to late fees, and that costs more than the interest. The useful question is what's the shortest term whose payment you can comfortably carry — not what's the lowest payment available.
The amortization table shows why: early on, nearly all of the payment is interest. Extra principal payments in the first months are the ones that cut the most time off the loan.
Rate, APR and what sits outside the payment
The interest rate and the APR aren't the same thing. The APR folds in certain loan charges, which makes it the more honest comparison between two offers — but only if both are calculated the same way.
Ask specifically about what isn't in the payment: origination fees, insurance products offered with the loan, prepayment penalties and what happens if you're late. A loan with a prepayment penalty takes away the best tool you have, which is paying extra when you can.
If you're comparing a bank against a credit union, compare them on the same three numbers — APR, term and total interest — not on the conversation at the counter.
Consolidating credit card debt
Swapping card debt for a lower-rate loan works, and sometimes works very well: fixed payment, a known end date and less interest.
With one condition, and it decides everything: if the card gets loaded up again after you pay it off, you end up with both debts and in a worse position than you started. Put the card away or close it before you sign anything.
Before deciding, run both paths. The credit card payoff calculator tells you what it costs to clear the card paying a fixed amount each month; the personal loan calculator tells you what the consolidation costs. Compare total interest one against the other and the answer picks itself.
The annual rate, not the monthly payment
Two loans with identical monthly payments can cost very different amounts if the terms differ. A monthly figure can be lowered by stretching the term without the loan improving at all.
What is comparable is the annual rate and the total repaid: payment times number of payments. If an offer doesn't give you the total, ask for it before signing.
Charges that don't show in the rate
Some costs live outside the interest: origination fees, loan-linked insurance, prepayment penalties. A loan with a slightly lower rate can end up dearer because of them.
The prepayment penalty matters more than it appears: if your plan is to clear it early, a loan that charges you for doing so cancels the exact strategy you were counting on to save.