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How to Get a Lower Rate on a Personal Loan

How to Get a Lower Rate on a Personal Loan

Personal loans are unsecured loans that you can use however you need to use the money. This is in contrast to education loans that can only be used to pay for one’s education or living expenses while attending school. Personal loans come with all sorts of terms and conditions. Here are a few tips on how to get a lower rate on a personal loan.


Do Your Homework

If you want to find the lowest personal loan rates, you’ll need to do your homework. Don’t do a generic internet search and apply for a loan on the first web page that looks good. Don’t make the mistake of clicking on the links of supposed lenders sending you email ads, either. Spammers are very likely to be scammers, though they may simply be high interest rate lenders preying on those who are desperate. The solution is to do your research, comparing interest rates and loan terms among lenders. Use a portal site that allows you to compare various loans by their interest rates, the duration of the loan, and any related terms and conditions.


Once you’ve identified several potential lenders, research the individual institutions. If they don’t have a valid address or only give a post office box as their address, don’t do business with them. Don’t give much weight to reviews on the portal website or testimonials on their home page. Instead, check with the Better Business Bureau and consumer review sites. Do they have a history of assessing extra fees or accidentally over-drafting people’s bank accounts? Is customer service available when someone runs into a problem? Do they hide extra penalties in fees in the fine print? Good lenders are up front about what you’ll pay when you use their services. Note that you should not have to pay up front to take out a loan. Reputable lenders factor the loan servicing costs into the interest you’ll pay on the loan.


Stay Away from Payday Loans 


Payday loans come with insane interest rates. You could pay an interest rate equivalent to more than a 1000 percent annually. And the interest rate is even higher if you have to roll over the loan another period, causing fees and interest to accrue. The false attraction of payday loans is that they don’t rely on your credit score. The problem is that they cost so much of your income that most people can’t get out from under them.


Installment loans are slightly better, but they may come with an exorbitant interest rate, as well. Don’t make the decision based on a low monthly payment but on what you’d pay over the life of the loan. If you can’t make the payments, you can extend the installment loan to lower the payments. The lender may not even charge a fee to do so, though you’ll pay for it in the form of higher interest payments over the now longer loan duration.


Reduce Your Risk Profile


One way to reduce your interest rate is to reduce the risk lenders associate with the loan. One option is having a co-signer. This person is legally responsible for the payments if you can’t make them. Not all lenders will allow you to have a co-signer, and the odds of it are even lower when you’re applying for a loan online. Note that this is different from being an authorized user on someone else’s credit card, though that will improve your credit score, as well.


You can’t do much to change your risk profile when you’re about to apply for a loan. If you plan on taking out a new loan in the future, then get control of your finances. Don’t let any bills get paid late, and always make at least the minimum payment.

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Determine your current debt to income ratio and what you can afford. Don’t ask for a larger loan than what lenders think you can repay. Don’t apply for several loans at the same time out of fear of rejection. Lenders who see you applying for a number of loans will be afraid to issue one, because you probably can’t repay them all. Apply one at a time, and only take out loans you need.

Stop the Credit Card Merry-Go-Round

There are many people who are constantly opening and closing credit cards. This hurts them in a variety of ways. Opening store credit cards to take advantage of a discount introduces the risk that you’ll get dinged later because you forgot to close it before an annual fee was assessed. Or you’re hit with a fee that you didn’t know you’d need to pay because you haven’t gone back to that store for a while. Stop taking out new credit cards, because each one pulls down your credit score.


Don’t play a game of constantly rolling over credit card debt from one credit card to another, chasing low teaser interest rates. Instead, invest time and effort into getting control over your money. Reduce your expenses. Cut the subscriptions you can’t afford to maintain. Say no to the little splurges that are inflating your credit card bill. You might want to cancel the rewards credit card, if you are constantly overspending to get the travel miles you may or may not be able to use for that dream vacation.


Sometimes more drastic action is necessary. You may need to move to a cheaper place or put your student loans into forbearance. Cancel the extras that add up over time like credit card life insurance and extended warranties on your appliances. Do these things before you move your credit card balance to yet another low interest loan. Then apply the extra money toward the credit card balance so you can pay it down. This will reduce the overall debt load, and it will improve your credit score. Focus on paying off the little debts, since this gives you a sense of accomplishment. It also eliminates a bill from the stack of bills you have to pay every month, reducing the risk you’ll miss a payment.


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