How to Get the Best Rate on a Personal Loan

A personal loan could be a great option if you need cash to pay for major expenses like medical bills, debt consolidation, or car repairs.

Personal loans can be secured, requiring collateral like a car to secure the funds, or unsecured without collateral. The interest rates for personal loans tend to be lower than most credit cards, which makes them ideal for many situations. However, it’s important to remember that the exact interest rate you qualify for will vary depending on several factors.

This article will discuss what you can do to help get the best rate possible when you apply for a personal loan.

How Will the Lender Determine Your Personal Loan Rate?

Different lenders have varying lending standards and criteria to determine what rate they will charge on a loan. Your creditworthiness is one important factor that they will consider, but they’ll also look at other factors, including the following:

• Income
• Debt-to-income ratio
• Amount of the loan
• Duration of the loan

Tips for Securing a Better Interest Rate on a Personal Loan

Here are some things that you can do to help you secure the best rate on a personal loan:

Check Your Credit Report Before You Apply

First up, start by reviewing your credit report. If your credit score is on the low side, look at your report to see if there’s anything you can do to address it before applying.

Things like late payments, high balances on accounts, or applications for new credit could be why your credit score is not in the best shape.

In some cases, mistakes or discrepancies could be another issue. If you find anything inaccurate on your report, like accounts that don’t belong to you or a wrong name or phone number, you should contact the credit bureaus with the mistakes listed on your report to correct them.

Once you know your credit score, you’ll have a better idea about the type of loans you might qualify for to know your options.

Get a Co-Signer

You may want to consider getting a co-signer if you have a less-than-perfect credit score or don’t meet the income requirements. A co-signer with a more favorable credit score and income could increase your chances of getting approved for a lower interest rate on a personal loan. It’s important to note that the co-signer will also be responsible if you default on the loan for any reason. Not all lenders allow co-signers, so check with potential lenders to see if this is an option.

Shop Around

Shopping around is one of the best ways to improve your loan terms. Different lenders have different lending criteria, and comparing different loans allows you to take advantage of the best loan terms. Prequalifying for loans is a great way to see what you may qualify for without affecting your credit score. It helps you compare interest rates and terms across lenders to make an informed decision before committing.

Take Steps to Boost Your Credit Score

While this is more of a long-term strategy, it’s worth working toward anyway. The higher your credit score, the more likely you will be approved for the best loans, including a low interest rate. Steps that you can take to help build your credit include the following:

• Pay all your bills on time.
• Keep your credit card balances low. Try not to use more than 30% of your available credit at any time.
• Pay your credit card balance off each month, or at least pay more than the minimum when you can.
• Check your credit report regularly and address any mistakes.
• Limit your requests for new credit. Check your eligibility first.

The Bottom line

You’ll want to ensure you find a loan with terms that align with your budget, including the lowest interest rate. While taking steps to improve your credit score is a good step, there are other ways that you could qualify for a lower interest rate as well. It’s best to check your credit report first to see where you stand and prequalify with potential lenders to shop around before you commit to a loan.

Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of gearfuse.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.