Everyone wants to pay less in interest, so let’s make that happen. Here are a few ways that you can secure a lower rate on your personal loan.
1) Get Your Credit In Shape
You likely already know that credit is everything when it comes to qualifying for a lower interest rate. The higher your score, the lower your rate.
If you need the money right now though, you probably think it is too late to do anything about your score. Well, that may not necessarily be the case.
There are some things that you may be able to do in the short term, 30 to 45 days, that could have a positive impact on your credit score. Here is what needs to happen.
First, pull a copy of your report from all three bureaus. You want Experian, Equifax and Trans Union. You can not assume that they will all be the same. Once you have these reports, check them for errors and dispute any that you find. The bureaus will have 30 days to investigate the errors, so get this done right away.
Next, see where your credit score lies. Are you just a few points away from moving from good credit to excellent credit? If so, it might be advisable to make an extra payment on a credit card or wait for an old inquiry to drop from your credit file before applying for a personal loan. Sometimes even just a few points on your credit score can make a dramatic difference in regards to the interest rate you qualify for.
2) Borrow Less Money
Borrowing the least amount of money possible is generally a good idea. The more money that a lender is putting on the table, the more they stand to lose. This makes a high dollar loan riskier and they will charge a higher interest rate.
When you need to borrow 10,000 dollars, by all means borrow that much. If, however, you can get by with just 8000 dollars, you would be better off doing so. Sit down and consider just how much money you really need before you apply for a loan.
3) Pay It Back Faster
Just as a higher dollar loan is riskier, so is a longer term loan. The longer that a loan goes, the more time there is for something to go wrong. You could lose your job or face a major life change that could affect your ability to pay back the loan.
Pick as short of a term as you can afford. You will pay less interest and you will pay down the principal much faster.
4) Shop Your Loan Around
With the same credit score, you might qualify for vastly different interest rates from competing lenders. Don’t let your loyalty for one particular bank keep you from getting a better personal loan interest rate.
Shop 2 to 3 different banks before making a decision. Online lenders are a possible choice, but also consider a local credit union. Credit unions often have rates that are hard for any other bank to match.
When shopping your loan, try to do it within the same one or two day period. This will indicate to the credit bureaus that you are shopping a loan and the multiple inquiries will generally count as just one, sparing you a large credit score decrease.
5) Ask For A Better Rate
Sometimes, getting a better rate is as simple as asking for one.
This is unlikely to work with most of the larger banks like Bank of America or Chase, but if you are trying to work with a local bank or credit union, you might have a shot. These institutions may have less rigid rues and may be able to work with you.
The trick to negotiating your rate is to sell yourself. If you have great job stability sell that. If you are using the loan to pay off debt, thus improving your credit worthiness, sell that. Anything that you can do to prove that you are a lower risk will help you get a rate reduction. This is especially true if you have a past history with the bank in question.