If you’re thinking about taking out a personal loan, getting a low rate is extremely important.
A couple of percentage points difference in rates can be several thousand dollars over the course of the loan.
This article explains how you can get the best rates on a personal loan.
1. Improve Your Credit Score
For the best rates, you need a great credit history and credit score. If things aren’t as good as they could be, all’s not lost. There are things you can do to improve your credit. Remember, an increase in a few more points could make all the difference.
One thing that will help is being added as an authorized user on an existing credit card or account. Is there a friend or relative who might help you with this?
You could also take out a card yourself and make full payments on time each month. Any credit on your card should be as low as possible and paid off as quickly as possible.
It’s wise to get a copy of your credit score and thoroughly check the details for any mistakes. If there are errors, you should get them fixed.
Ways to Improve Your Score Quickly
Get added as an authorized user – If you know someone with a credit card in good standing, see if they will add you as an authorized user. When added, the entire account history will be listed on your credit history. The main benefit of this strategy is to increase the average age of your open credit accounts.
Pay down credit card debt – Your credit utilization ratio is the amount of available credit you have used; it accounts for 30% of your credit rating. Try paying down your balances to less than 30% of the credit limit to maximize your score.
For more tips on increasing your credit score, quickly check out this article.
2. Go for a Shorter Personal Loan Term
The more quickly a loan is paid back, the less risk there is to the lender. This is why you may well find that a lender will give much better interest rates over shorter loan periods. This generally means three to five years.
It would help if you had a plan for how you intend to repay your debts. For the best rate, borrow for shorter periods, but you must make the repayments. These will be higher if you’re not going to spread them over a longer time frame.
3. Check the Small Print
You must check the terms and conditions that apply to the loan you wish to take out.
Ensure you understand all the charges you will have to pay over the loan’s lifetime. These will be higher for personal loans taken out over a longer period of time.
Interest may not be the only extra you have to pay. Application fees and other charges can have an impact on what you borrow. You should check out the APR. This includes all fees and interest to give an accurate figure of the cost of the loan.
4. Get a Secured Personal Loan
Lenders want to be sure that you can pay your loan back. Credit checks are one way they ascertain the risk. An unsecured loan doesn’t require you to leave anything as a deposit in case you can’t pay the loan back.
A secured loan is guaranteed by an asset which the borrower owns. This could be your home, a car, or even an investment. Home equity loans are also a great way of releasing cash quickly.
Secured personal loans tend to carry with them lower rates of interest because the risk has been mitigated. It’s well worth investigating if you would qualify.
5. Special Offers and Discounts
Lenders want to make cash advances; that’s how they make their money. Quite often, they will offer a low discounted rate on a personal loan. This could apply to a borrower who agrees to make automatic monthly payments, for example.
Sometimes these discounts are included in advertised rates. You should always make sure you’re entitled to the discount before signing up.
6. Get Yourself a Cosigner
If your credit score isn’t as good as it could be, you may still get a loan, but it could be at a higher rate of interest. You can improve things straightaway by riding on the score of a friend or relative who has a higher score than you.
If you have someone willing to cosign on a loan with you. The lender will then take their credit history into consideration, which could mean a better interest rate.
7. Variable Rates Could Be the Best Option
Fixed-rate personal loans tend to be higher, but last for the life of the loan. This can help with budgeting as it makes it simpler to understand the repayments.
A variable rate or adjustable-rate interest loan may mean lower payments at first, followed by higher rates during the course of the loan term.
A variable-rate could mean that you obtain a lower personal loan interest rate. These usually work best for short-term loans. This is because you’ll have paid them off before the rate becomes too high.
8. Check out Reviews
Taking out a personal loan may mean using a lender who is not particularly well-known. They may well give the best rate, but it’s important to know you can trust them.
You should do your homework and check your lender out by reading online reviews. You can then make a balanced judgment on whether you think a lender is right for you.
9. Stick with Who You Know
If you already have a checking or savings account with a particular bank or credit union, that’s a good place to start looking at loan products. The fact that the bank already knows you can be invaluable.
Some banks will offer their customers preferential interest rates. Automating your monthly payments is simpler and less risky for the lender.
10. Shop Around
The interest rate and lender fees will vary from lender to lender. You should never accept the first offer you receive. We recommend getting loan quotes from at least 3 or 4 lenders.
Whenever you apply for a loan, there will be an impact on your credit history. Each inquiry has the ability to lower your score. Be selective with any applications so that your credit score doesn’t take a massive hit.
You don’t need to actually make an application to judge if it is likely to be successful. Checking a lender’s website or speaking to an independent loan specialist will help.
The Bottom Line…
The interest rate you get on a loan is significant; a single percentage point can save or cost you thousands of dollars. Before applying for a personal loan, you should do your best to improve your credit rating.
Shop multiple lenders to compare rates and fees to ensure you’re getting the best deal.
Are you ready to apply for a personal loan?