What is a personal loan?
A personal loan is known as an amount of money borrowed from a lender and is paid back with instalments, or equal monthly payments, over a fixed period of time (usually 2-7 years). A personal loan can be acquired from banks, credit unions, and online lenders.
You pay interest on the loan in return for borrowing. Interest rates can range from somewhere around 6% to 36%.
Personal loans are one of the smarter ways to cover life’s big expenses since personal loans come with higher borrowing limits as opposed to credit cards and have a predictable repayment schedule. Opting for a low-interest personal loan will allow you to get the money you need at the lowest cost possible.
With that being said, here are five steps you can take to make sure you get the lowest interest rate possible when you apply for a personal loan. Read it thoroughly to learn more about how to get the most out of your money.
Shop around and compare offers
Not all personal loans are alike. In fact, a lender will most likely offer you a unique fee structure and interest rate than the other, which is why it is very important to look around for a loan or multiple loans before ultimately deciding where and which to apply.
Try to opt for loans that offer a soft credit inquiry when comparing loan options. Soft credit checks will not affect your credit score, whereas every hard credit inquiry will decrease your score by a few points. In addition, having hard credit checks done in one time can damage your credit report significantly.
Choose to get a secured loan
Opting for a secured personal loan is another great way to be given better interest rates, even if your credit score isn’t the best. Secured loans are usually backed by collateral, or an asset you own, such as your home or a car. The lenders have the right to repossess the said asset in the event that you default or stop making payments to them.
Again, the interest rates offered to you by the lender are a reflection of the level of risk you pose to them. Luckily there are websites that can help you see what kind of interest rates you can qualify for with your credit history.
Many lenders believe and are willing to bet that you will more likely be able to keep making payments on the loan if an expensive asset is on the line. That is why they are willing to offer you better rates in exchange for that added form of security.
Go for a short-term loan
If you opt for a short-term loan, you may be able to get a significantly lower interest rate. In this case, since the period of time between when you are given the money and when full repayment is due is fairly shorter, most lenders think that there are fewer chances they won’t be repaid.
That being said, short-term loans often mean higher payments. It is extremely important to make sure that you are comfortable with the payment amount if you wish to go with this option especially if you’re trying to consolidate other debt. Otherwise, it is smarter to go with a longer loan term with a more affordable payment even if it means you’ll be getting a slightly increased interest rate.
Look for seasonal offers
In most cases, lenders will notify customers about special offers via SMS and/or email. Always be on the look-out for these offers if you want to get your personal loan at a more affordable rate. These offers will allow you to get limited-time discounts on the interest rate and any amount of help you can get is plenty. These discounts are often available when you apply online, during festive periods.
Check your credit score
Usually, when you have high credit scores, you are given a personal loan with the best interest rate. With that being said, it is a good idea to check your credit report so you can see your credit score and check for any possible errors before you start the application process. You are given one free credit report per year from all of the credit bureaus and there are websites that allow you to check all three reports once. By the time you have your reports in hand, go over them thoroughly and carefully. This is very important considering the fact that a Federal Trade Commission study once found that 5 per cent of credit reports contain errors that can affect that will most likely affect loan terms given to borrowers. What you should immediately do when you find an error with your credit report is to write letters to both the credit reporting company and the company who provided them with the information, requesting a dispute. Be sure to provide any information that supports your claim along with your request.
Get a co-signer with a good credit score
One way to ensure that you are offered a low-interest personal loan if your credit score is not the best is to find a co-signer who has a great credit score. It is important to note that the co-signer agrees to take financial responsibility for the loan in the event that you default. This helps reassure the lender that they will be repaid.
If possible, you must choose a co-signer who has good or excellent credit scores. Since those who have higher credit scores most likely have stellar payment histories, the lender will likely offer better terms-including a lower interest rate or a higher amount of money for the loan- than they would offer for a co-signer that has a lower score
You must always be sharp when it comes to choosing and planning out your personal loans. Consider all your options and always remember the basics when going out to apply for personal loans. Feel free to contact us if you have any other questions concerning your loans and finances. We are a team of experts ready to help you as soon as possible.