These tips can help ensure you don't pay too much for your personal loan.
A personal loan can be a good option if you need to borrow money because this type of debt tends to be less expensive than many alternatives.
Most personal loans have lower interest rates than credit cards. And if you choose a fixed-rate personal loan, there won't be any surprises. Your rate will remain the same the whole time you're paying back your debt. And you'll know from the start exactly how much interest you'll pay during the time you're borrowing.
If you've decided to take out a personal loan, though, you should be aware that there's wide variation in interest rates and terms from one lender to another. As a result, you'll want to shop around carefully and make sure you're doing everything you can to get the most affordable loan.
That includes following these four tips to qualify for a loan at the most competitive rate.
1. Shop around with several lenders
As you learn how personal loans work, you might be surprised how much interest rates vary from one personal loan lender to another. Don't settle for a loan just because it comes from a bank you do business with or because it seems affordable. Get quotes from at least three lenders -- and ideally from as many as possible.
Get your quotes from different kinds of lenders -- including local banks, national banks, credit unions, and online lenders. Be sure to compare total borrowing costs and look for the lender that offers the overall best rate and terms after factoring in interest and other fees.
2. Make sure your credit score is in good shape
Your credit score will also have a major impact on how much a personal loan costs you. If you have a good or excellent credit score, you should be eligible for the best rates that lenders offer because they'll view you as a low-risk borrower.
Here's how to get your credit in tip-top shape before applying for a loan:
- Review your credit report for errors and get any you might discover corrected ASAP
- Aim to pay down as much of your debt as possible to improve your credit utilization ratio
- Request creditors remove a record of past late payments or other problems if you've usually paid on time
The more you can improve your credit before applying for a personal loan, the lower your rate should be.
3. Don't borrow more than you need
In the eyes of a lender, borrowing a large sum of money can make you a riskier customer. Lenders are putting more money on the line. And there's a greater chance you won't be able to make the high payments associated with a large loan.
As a result, if you keep your borrowing request to a reasonable level, you're more likely to qualify for a loan at a lower rate. Plus, a lower loan balance also means you'll be charged interest on a smaller sum, so that will save you money. And it will be easier to pay off the borrowed amount since each payment won't be quite as high.
4. Don't borrow for longer than necessary
Lenders also view loans with longer terms as riskier. After all, if you've stretched out the time it will take you to pay back the debt, there's a greater chance something could go wrong during that longer time frame.
To keep your interest rates more affordable, keep your repayment timeline as short as possible given the monthly payments. This will save you money on interest by scoring you a lower rate -- and by allowing you to pay it back over for the shortest possible time.
Our picks for the best personal loans
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.
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