Since personal loans come with higher borrowing limits than credit cards and predictable repayment schedules, they are often a smart way to cover life’s big expenses. However, in particular, opting for a low-interest personal loan will give you access to the money you need at the lowest cost to you.
To that end, below are five steps you can take to ensure you’re offered the lowest interest rate possible when you apply for a loan. Read them over to learn more about how to make your money work for you.
Shop and compare offers
Not every personal loan is created equal. In fact, every lender will likely offer you a unique interest rate and fee structure. That why it’s absolutely crucial to shop around for a loan before deciding ultimately deciding where to apply.
Doing your homework can save you a lot of money in the long run. If you’re looking for an easy way to compare your available personal loan options, Credible can help you do so from the comfort of your own home.
When comparing loan options, try to opt for ones that offer the opportunity for a soft credit inquiry. Soft credit inquiries do not affect your credit score, whereas every hard credit inquiry will drop your score by a few points. In addition, having too many hard credit inquiries on your credit report at one time can impact your score even further.
Opt for a secured loan
Another way to be given better interest rates, even if your credit is not the best, is to opt for a secured personal loan. Secured loans are backed by collateral, or an asset that you own, like your home or a car. With these loans, the lender has the right to repossess the asset in the event that you default or stop making payments.
Again, the interest rates you’re offered are a reflection of the level of risk you pose to the lender. To see what kind of rates you qualify for with your credit history, enter your desired loan amount into Credible's online marketplace and compare offers from lenders almost instantly.
Many lenders are willing to bet that you’ll be more likely to keep making payments on the loan if an expensive asset is on the line, and they’re willing to offer you better rates in exchange for that added sense of security.
Select a short-term loan
You may be able to secure a lower interest rate if you choose a short-term loan. In this case, since there is a shorter period of time between when you’re given the money and when full repayment is due, most lenders feel that there is less of a chance that they won’t be repaid.
That said, short-term loans often come with higher payments. If you decide to go this route, it’s extremely important to make sure you feel comfortable with the payment amount. Otherwise, it’s smarter to choose a longer loan term with an affordable payment, even if it means receiving a slightly higher interest rate.
Check your credit score
Personal loans with the best interest rates are given to those with the highest credit scores. With that in mind, before you start the application process, it’s a good idea to take a look at your credit report so you can see your credit score and check for any errors.
You’re entitled to one free credit report per year from each of the credit bureaus and you can check all three reports at once using AnnualCreditReport.com. Once you have your reports in hand, read them over carefully. This is especially important if you consider a Federal Trade Commission study once found that 5 percent of credit reports contain errors that can affect the loan terms given to the borrowers.
If you find an error, your best bet is to write letters to both the credit reporting company and the company who provided the information, requesting a dispute. Along with your request, be sure to provide any information that supports your claim.
Get a co-signer with a good credit score
If your credit score is not the best, one way to ensure that you’re offered a low-interest personal loan is to find a co-signer who has a great score. Remember: a co-signer agrees to take financial responsibility for the loan in the event that you default, which helps reassure the lender that they will be repaid.
Whenever possible, choosing a co-signer who has a good or excellent credit score is ideal. Since those who have higher scores tend to have stellar payment histories, the lender will likely offer better terms - including a lower interest rate or a higher loan amount - than they would for a co-signer with a lower score.