A personal loan can help you with a wide range of personal finance concerns. You can use it as a down payment for a new car or gadget you want to buy. It can also fund your next holiday. The right personal loan can also be a big help when you or a loved one encounters a medical emergency.
Although a loan can bail you out of nearly any kind of cash emergency or need, it can also pose a problem in the long run. This happens when you get a loan with high interest rates.
Finding a Loan with a Low Interest Rate
To ensure you get a personal loan that comes with a fair, manageable interest rate (and one that won’t sink you into further debt), follow the tips below:
1. Shop around
Go online and read up on the different loan options offered by various banks. Check what your current bank offers as well. If you’re interested in any of the offers, call or visit the bank to talk with a representative to get more details.
Your current bank may give you a better loan rate since you already have a relationship with them. However, this is not always the case. You may get a better deal on your loan from a bank that is welcoming you as a new customer.
The bottom line is, if you want to find a loan with a good interest rate, take the time to shop around and compare the different loan products.
2. Decide how much you want to borrow and choose a payment term you are comfortable with
To have an idea of the best interest rate you can get, decide on how much money you want to borrow and how long you want to pay it back first. This will help you have an easier time comparing the rates offered by the different lenders.
Loan comparison sites have tools that will let you type in different amounts of money and the time you need to repay the loan. They will make the necessary calculations so you can see what monthly repayments would be like for the payment term you are comfortable with.
A rule of the thumb worth remembering is that the longer you take to repay the money you borrowed, the more a loan will cost you in interest overall.
3. Borrow more to pay less
Banks and lending firms tend to charge different rates of annual percentage rate (APR) based on how much money you borrow. But normally, the more money you borrow, the less APR you will be charged.
In some instances, you can still borrow a small amount of money and still be charged a low APR. You just need to find the amount that tips you into the next APR bracket.
To work out how to get the lowest APR and the cheapest overall cost of your loan, do some calculations to work out the best amount to borrow. You can get help with this from a loan officer.
4. Take a look at your current credit score
Generally, when you have a high credit score, you will have better chances of being offered a lower rate of interest on a loan. In case you currently have a low credit score, delay applying for a loan until you can raise it. You can start raising your score by paying off your credit card balances first.
5. Opt for a fixed rate
If you want to avoid all the stress that comes with repaying your loan, choose a product that applies a fixed rate of interest. With this term, the rate at which the interest will be applied to the amount you borrowed and the amount you need to pay remains the same throughout the payment term.
By knowing the exact amount you will have to pay monthly and that it will never suddenly increase (unless you have to pay late payment charges), you can budget accordingly. You will also have peace of mind that you can pay this amount every month.
Most loans nowadays offer fixed rates today. However, you still have to check the small print before applying so that you can be sure what your interest rate will be and how long it will stay fixed for.
6. Avoid applying for multiple loans at the same time
Lastly, no matter how dire your need for a huge amount of money is, do not apply for several products at once. This is because every time you submit your loan application online or personally, the lender will check your credit report and history. Your file will receive a mark after the credit application or hard searches are carried out.
Although one application once in a while won’t cause too much damage to your credit rating, if you make several applications simultaneously and you are unsuccessful, this will likely damage your credit score. As a result, your chances of being offered a good loan rate will be lower.
Whether you choose to take a loan from a leading local bank or a private lending firm, do not rush the whole process. Take the time to check and compare the different products and their terms and conditions. Only submit your application once you’re sure you are comfortable with the payment terms of a particular loan product.