Are you looking to take a consumer loan? If so, then there are so many things that you need to consider when doing so. One of the many factors to consider is the interest rate. This is because this rate can make a substantial difference in how much you’ll end up spending over time.
Interest rate is the amount the lender charges you for the money you borrow and what the lender uses to make their profit. A high rate may leave you struggling to pay off your debt because the interest is typically added to your monthly payment. But a low one will make you spend less and help you pay off your debt in record time.
When it comes to this, a difference that may look insignificant at the time may end up making a huge difference. That difference that you thought was so little can accrue over time into a big amount of money. This is why people often look for the lowest rate when getting a consumer loan to ensure the money they end up spending overtime is not more than they were meant to. There are different tips borrowers can use in getting the lowest interest rates on their consumer loans and we will be discussing these tips below.
Shop Around
When you want to get the best deal, the last thing you want to do is settle for the first lender you meet. Even if you already have a trusted lender, it won’t hurt to check around to see what others are offering before you make your choice. Shopping around is quite easy when it comes to getting the best consumer loan deal. All you have to do is go through the pre-qualification process for the loan, the lender will then run a soft inquiry on you, and subsequently send you an offer.
When you compare different lenders, you’ll have a better chance of getting a low rate that will work for you. So, get about 3 to 5 offers from different lenders and properly compare them. Aside from the interest rate being offered, you also need to consider other factors like fees and repayment terms when considering the offer.
Avoid Fees
Interest is not the only thing that makes up the annual percentage rate (APR) of a loan. APR is the total cost of borrowing, and this typically includes the interest rate and other fees. You can check https://fitmymoney.com/ to read up more on APR. You cannot avoid the loan’s interest, but you can avoid certain fees.
Avoiding fees will help reduce your APR and the overall money you end up spending on the loan. One of the most important fees to avoid is the origination fee. This fee often varies from one lender to the other and can be anything from 1 percent to 8 percent of your principal amount. Typically, this fee is deducted from the funds before it is disbursed to you.
Your goal is to look for a lender that does not charge this fee. But if this isn’t attainable, then look for one with a low origination fee. Also, do not compare this fee in isolation as most lenders will offer a low origination fee but try to make up for it with the interest they charge.
Consider Co-Signing
Some lenders accept co-signing for their consumer loans. This allows a borrower to use a sort of guarantor for the money they borrow. Let’s break this down; if you know someone who has a high credit score, you can convince them to co-sign the loan for you. Because of the person’s good credit history, you can end up qualifying for a low rate.
However, the co-signer is guaranteeing that you’ll pay back what you borrow. Therefore, in the case that you fail to pay off the money, the co-signer will have to pay off the money on your behalf. Also, this can affect the co-signer’s credit history as the default would reflect in their report.
This is why some people would not agree to co-signing. You’ll have a better chance of convincing your spouse, family member, or close friends to do this for you. However, never trick anyone into co-signing for you. Always make sure you explain the risks and responsibilities they have to bear if they decide to do this for you.
Work on Your Credit Score
One of the things that influences how much lenders will charge you for lending you money is your credit score. This is because lenders want to be sure of the creditworthiness of the people they lend money to. If you have a poor credit score, your creditworthiness won’t be doubted. This does not mean you won’t find a lender that will approve your loan, it simply means that the lender won’t trust you that much.
Because they do not trust you and the risks involved, the lender will try to make as much as possible from the deal. This would make them charge you way more than they’d charge someone with a high score. So, if you want to get the low or lav (as they say in Norway) interest rate on your consumer loans, you need to work on your score and make it as high as possible. There are so many strategies that you can employ to do this; do your findings and figure out the right strategy or strategies for you.
Use Collateral
A lot of consumer loans are not backed up by collateral; when a loan isn’t backed up by collateral, the interest rate is often higher. However, the rates of collateral loans are relatively lesser because the lender’s risk is significantly lesser. If you fail to pay up your debt, the lender can simply seize your collateral to get back their funds. So, if you’d like to get a low rate, consider using collateral like your car or home equity to secure the loan.
Conclusion
Getting a low interest rate for your consumer loans is easy with the right tips. In this article, we have discussed some of the tips to help you do this. Hopefully, these will help you save up some money on the next loan you take.
