Personal loans are experiencing a boon; to the tune of $138 billion. They’re now within reach for many Americans, and the stigma as a fast cash opportunity when you’re broke is almost completely gone.
In fact, many Americans are using it as a tool to consolidate debt, as the average consumer has $5,000 in credit card debt alone.
But with so many Americans opting for a personal loan, how do you get a low-interest rate for your shiny new cash? After all, a loan with a high-interest rate might only increase your stress.
So, how do you get a low-interest loan? Read on for some of our best tips and tricks.
Personal Loans Definition
Before we go too much further, let’s explain what a personal loan is for those who aren’t familiar with the concept.
A personal loan is a loan given to an individual by a lending institution. It differs from a credit card in that you’re given a set amount. A credit card, however, can have its limit extended an unlimited amount of times, meaning some people may never pay off their credit card.
Personal loans also differ from student and business loans, in that they aren’t limited in what you can use them for. You could use them for tuition or books if you like, and you can certainly use them for business. But, a personal loan isn’t limited in its capacity in the same way.
As such, you can use a personal loan for almost anything. Some of the most popular uses include vacations, debt consolidation and weddings.
Personal loans are largely unsecured, meaning they aren’t offset by an asset. A secured loan uses an asset as collateral, meaning the bank may be able to seize the asset if the loan is not paid. An unsecured loan doesn’t usually have the security of an asset, therefore, it is often subject to lower borrowing limits and higher APRs and interest rates.
How Do You Get a Low-Interest Loan?
There isn’t a magic formula for a low-interest loan, but there are a few ways you can make it more likely.
The first way to make it a little bit more likely is to get a secured loan. This isn’t always possible when it comes to personal loans, but if you’re able to get a secured loan, this is always the way to go. As we stated above, a secured loan often gives you a lower interest rate and lets you borrow at higher amounts.
Below are a few other ways to ensure your loan is low-interest.
Work on Your Credit Score
A good credit score is one of the surefire ways of getting a low-interest loan. Your credit score is a reflection of how likely you are to pay the bank back its loan and is based on how well you handled previous loans and credit cards.
Many things are taken into account when calculating a credit score, but the biggest is whether you’ve paid back loans in the past and if you’ve done so on time. Also taken into account is your debt to credit ratio. For example, if you have lines of credit worth $5000 and your debt on that credit is $4500, your credit score will be much lower than a person who has $1000 of debt on the same amount of credit.
If you’ve blown it in regards to your credit score in the past, it isn’t the end of the world. You can repair your score with time, and a strong will to do so. But that also means you won’t be getting a low-interest loan any time soon.
Discuss It With Your Lender
Although many personal loans given out are done so via the Internet and are totally impersonal, believe it or not, there is a person on the other side of that screen. While they may not be involved in whatever algorithm came up with your interest rate, actual people, in fact, do work there.
Talking to a person who works at your lending institution one on one is a great way to do so. You may be able to negotiate with them and talk them down to a lower interest rate.
You can bring up factors such as your job, how you’re always paying bills on time and how you’re a lower risk than the algorithm originally thought. Of course, this doesn’t guarantee a lower interest rate, but it doesn’t mean you can’t give it a try.
If you’re suffering from financial hardship and the increased APR is making it significantly more difficult to pay back your loans on time, you may wish to also speak to your lender. This won’t give you a lower interest rate initially, as financial hardship would mean they would be less likely to give you a loan. But, if you face financial hardship after loan disbursement, it could help you negotiate a lower interest rate.
Locking In Your Low-Interest Rate
So, how do you get a low-interest loan? The answer is by working on your credit score and working with your lending institution. There is no real secret to scoring a low-interest loan, but with a bit of work and perseverance and financial know-how, you’ll likely be able to do so.
If you want more information on payday loans, unsecured loans, personal loans and loans for poor credit, check out our blog. We’ve got everything you need to get you money quickly while maintaining a healthy credit score.