How To Benefit From Low Interest Rates On Personal Loans

Want a low interest rate on your loan? Here’s what it takes to get one. (iStock)

If you are applying for a Personal loanIt is essential to get a low interest rate, especially if you are borrowing a large amount of money.

While looking for lenders can certainly help (rates vary widely from lender to lender), there are other things you can do to improve your chances of getting a low-interest personal loan. This includes improve your credit score, reducing your debt balances, and more.

Here’s a look at what lenders consider when assess your loan application – and how you can increase your shot at these low rates.

Factor 1: Your credit rating

Your credit score will be one of the main considerations when apply for a personal loan. And the higher the score, the better. To see what type of rate you qualify for with your credit history, enter your desired loan amount in Credible’s online marketplace and compare lenders’ offers Almost instantly.

EVERYTHING YOU NEED TO KNOW ABOUT PERSONAL LOANS

“In general, a good credit rating is the most important factor when trying to get approval for a low interest rate on personal loans,” said research analyst Simon Zhen. “With FICO credit scores, the most common scoring model used by US lenders, a score of 700 or higher is likely to help borrowers obtain the lowest personal loan rates.”

You can check your credit score through one of the three major credit bureaus – Experian, TransUnion, and Equifax – although there may be a fee for this. Be sure to check with your bank or credit union before going this route, as many offer free credit score monitoring to their customers.

You can also use Credible’s personal loan calculator to estimate your monthly payments so you can determine how the payment will affect your budget.

CAN YOU GET A PERSONAL LOAN WITHOUT CREDIT CHECKS?

Factor 2: Your debt-to-income ratio

Your debt to income ratio – or how much you owe on loans, credit cards, and other debt in relation to your income each month – will also be a key determinant of your personal loan rate. If you are sure you have a good debt ratio, then use Credible’s free personal loan tool to see what type of rate you’re eligible for right now.

CALCULATE YOUR DEBT / INCOME RATIO AND KNOW WHERE YOU ARE

Here’s how Howard Dvorkin, president of Debt.com, explains: “Your debt-to-income ratio will also determine whether a lender is willing to lend you money. A low debt ratio means you can responsibly take on more debt and increase your chances of getting a loan approved, but a high debt ratio will do the exact opposite.

To calculate your DTI, simply take your total monthly debt, divide it by your monthly income, and multiply by 100. For example, if you earn $ 5,000 per month and pay $ 2,500 for your credit card bills and your mortgage payment on a monthly basis, your DTI is 50 percent ($ 2,500 / $ 5,000 x 100).

Factor 3: the duration of your loan

The length of the loan you take out also influences your rate. In most cases, shorter-term loans will carry lower interest rates than longer-term loans.

According to Toby Smith, senior vice president of loans at SECU Credit Union, long-term loans are simply riskier for lenders.

“If consumers can afford to pay off their loan over a shorter period of time, they should choose to do so,” Smith said. “For example, a three-year auto loan repayment term will typically carry a lower interest rate than a six-year term. This is because the longer the debt repayment term, the longer the lender’s risk exposure. More risk to the lender usually means that a higher interest rate will be charged. “

Factor 4: Your job

Your job – more specifically, the stability of that job – can influence the rate of your loan, too much. Lenders want to make sure that a borrower has a stable and constant income and that they will be able to repay their loan over the long term. If your work history is uneven, or if you’re currently unemployed, it can be much more difficult to qualify for low interest rates (or even qualify for a loan).

HOW TO GET A PERSONAL LOAN WITHOUT WORK

When you apply for a loan, you will likely need to provide proof of your employment. This is usually done with a recent pay stub or via a form filled out by your employer.

Factor 5: Your relationship with the lender

Sometimes your history with your chosen lender will also play a role in your ability to secure a low interest personal loan. According to Zhen, “Many banks offer rate reductions on personal loans when the borrower also has a banking relationship, such as a checking account linked to the same bank. “

For this reason, it’s important to include your own bank or credit union when shopping for your. Personal loan.

Comparative purchases are always important when take out a loan. Rates and terms can vary widely from lender to lender, even for people with the best credit scores and DTIs.

“I know people with similar credit histories and similar loan amounts who ended up paying very different interest rates on their loans just because one shopped for their loan while the other didn’t. didn’t, ”said Taylor Kovar, CEO of Kovar Capital.

Make sure you get loan estimates from at least three different financial institutions and compare quotes side by side to make sure you get the best deal (pay close attention to the rate, fees, and charges. the APR). You can get these quotes directly from the banks or credit unions you are considering, or tools like Credible can help you shop for multiple lenders with just one form.

Natalie C. Parsons