Qualifying for a Personal Loan with a Great Rate
Taking out a personal loan can help you relieve your debt load and cover unexpected costs, but take stock of your options before settling on one choice. Find the best rate, borrow only what you need and repay your debts on time. How much you can qualify for is directly related to your credit history and your repayment history.
It’s important to consider the type of loan you’re applying for when attempting to get a better rate on personal loans.
Unsecured Personal Loans
Getting an unsecured personal loan at some point during your credit life will be a lot easier, and cheaper, if you take care of your financial business. Maintain a good credit history, know your credit score, and always make loan payments on or before the due date. It’s clear in the financial world; lenders are more likely to lend you money for a personal loan, at a lower rate, if you can show high credit scores, a solid payment history, and income to pay your debts.
Borrowers with average credit will find plenty of options, too, but it most likely will come with higher rates. Some lenders will consider additional factors such as your job history or earnings potential in making their underwriting decisions.
With poor credit, you may have find a better rate on a personal loan if you have a cosigner or own property you can use as collateral. If you do find a cosigner, keep in mind that he or she will be on the hook for your missed payments. Do your best to honor your agreement and protect both your credit scores.
Secured Personal Loans
If you can, consider a secured personal loan instead. If you have a house, consider using it as collateral to get a lower rate. A home equity loan or home equity line of credit can often be cheaper than an unsecured personal loan. Keep in mind that using your home as collateral means that if you default, you could lose your home.
Pay off as much of your credit card balance as you can before you apply for a personal loan. The outstanding balance on your credit card — even if you pay it off at the end of the month and never pay interest — counts against you when a lender runs a credit check. Shop around. Your local bank may have better rates on personal loans, especially if you have a relationship with them.
Finally, make sure you understand all of the terms of the loan you are getting and agreeing to pay back. Look for prepayment penalty clauses before signing your contract. Just to be sure, always look for the words “no prepayment penalty” on your loan terms when you apply.
