Most people find themselves needing to look and apply for a personal loan at some point in their lives. This could be for paying for something unexpected, funding a necessary purchase, or managing several debts. Unfortunately, interest rates are currently on the rise due to the record-high inflation across the globe.
With interest rates rising, loans are now becoming more expensive. But there are strategies you can use to get the best deal available:
1. Know How Much You Need
According to Raiz, before looking for a lender, the first thing you need to do is ask yourself why you need the money and how much you need. Answering these important questions can help you when comparing interest rates and provide insights into how much different lenders may charge you for borrowing the same amount.
2. Review Your Credit Score
It’s no secret that you need a higher credit score to get the best interest rate on a personal loan. In general, you want to have a credit score of at least 740 and above to qualify for lower interest rates. Not only that, but a good credit score can also land you other benefits such as a longer repayment period or a bigger loan.
That said, if your credit score is in the lower or fair range, 670 scores and below, it may be best if you try to optimize and improve your credit standing first before looking for a personal loan.
Depending on how much time you have to boost your score, here are a few strategies to gain critical points:
- Pay bills on time
- Pay off existing revolving debt like credit card balances
- Dispute credit report errors
- Get credit for utilities and rent payments
3. Shop Around
When applying for a personal loan or any financial product, it’s essential to shop around and compare what’s offered to find the best deal for you. Don’t settle for the first lender you find. You should look at the rates and total cost for the amount you’re borrowing from different reputable loan providers. To make it easier, you can use aggregator sites that allow you to compare products from various lenders offering personal loans.
Take note, however, that the advertised rates may only apply to a specific loan amount. So, make sure to search for offerings for the amount you actually need to borrow. Also, always check the lending criteria before applying to ensure that you’re eligible. Some loans may not be available to people who have credit issues. However, you may be able to find unsecured and secured loans for bad credit as well as debt consolidation loans.
4. Avail Of Promotional Deals And Offers
Sometimes, lenders may offer seasonal and exclusive promotional offers and deals to their audience, which may include a lower personal loan interest rate. Also, some lenders may extend pre-approved offers to select customers. These are existing customers who are eligible and have a proven track record.
So, always check or ask potential lenders. Keep in mind that pre-approved and seasonal loan offers are only available for a limited period.
5. Understand Your Interest
Another strategy to help get the best deal on interest rates is to do your research on interest computation. Lenders offer different rates for various conditions. While some loans may look cheaper at the outset, you may end up having to pay a higher interest at the end of the tenure due to how they’re calculated.
This may be the case with variable interest loans. Unlike a fixed-interest loan, variable-interest loans will depend on the current market price and may throw your budget awry. So, make sure to thoroughly consider your options.
6. Opt For Shorter Loans
Interest rates tend to be higher when the money is borrowed for a longer period. This is because the risk to the lender is higher. Thus, personal loans with a shorter repayment timeline often have lower interest rates since they have lower risks to the lender.
That said, the longer your loan term is, the more affordable your monthly repayment is. So, make sure to strike a balance between paying off your personal loan as quickly as possible and having repayments that are more manageable to prevent hurting your credit score.
As you can see, taking out a personal loan doesn’t have to be expensive. By following the above tips and strategies, you can still get a reasonable interest rate on a personal loan that provides you with much-needed funding. Consider the ideas mentioned here as you plan and prepare.