Can anyone predict when financial emergencies will kick in their lives? He sure is very lucky to prepare for such instances. For most of us who do not possess this kind of gift, when emergencies come in, we usually lean on borrowing money from lenders. But, of course, we want the cheapest loan possible.
Speaking of cheap and immediate access, one might come up with two options: personal loans and credit cards. In this case, personal loans might be your best bet. Why so? Compared to credit cards with 14.89% average on interest, personal loans with 9.76% average rate are way cheaper.
But looking for the cheapest personal loan is a tedious task. Fortunately, there are lenders who help borrowers find the lowest loan possible. For example, you can look for the lowest personal loan from Match Financial as they have networked several lenders that make your search easier.
Now that you have the platform to compare the lowest personal loan rates, learn the tips on how to secure the best personal loans for you by reading the article below.
1. Improve your Credit Score
Your credit score represents your creditworthiness as a borrower. A credit score of 300 is considered to be the lowest and 850 to be the highest. The higher the score, the more trustworthy the borrower is. The lower the score, the more likely the borrower will default on the loan.
But why does this number matter? Simply because it is one of the determining factors of your personal loan rate. With this, it just makes sense to take some time to improve your credit. Here are some tips:
- Check your credit report for any errors – Review your credit report from the credit reporting agencies for any errors. If there is missing information or inaccuracy like the wrong name or address, contact the bureaus immediately to correct the mistake.
- Pay your bills on time – Late payments even just for a few days will hurt your credit score. To avoid missing payments, use payment reminders through your banks’ online portals or consider enrolling automatic payments.
- Lower your credit utilization ratio – Credit utilization ratio is the percentage of the total amount you owe on your credit card divided by your credit limit. Say, if you have a total of $10,000 on your two credit cards and you have a balance of $5,000, you have a 50% credit utilization rate. The best credit utilization ratio is 1% to 10%. A credit utilization ratio of below 30% is considered good. One of the best ways to improve this ratio is to lower the debt you owe.
2. Get Multiple Offers from Lenders
Lenders have different criteria for approving borrowers and different formulas in setting personal loan rates. These variations are attributed by the type of borrowers the lender is targeting. Typically, lenders who are targeting borrowers with bad credit scores have higher rate ranges compared to lenders who are targeting borrowers who have good credit scores.
It is smart to try each lender. Get loan offers from different lenders to compare which is more affordable and manageable for you. But, make sure to deal with a lender that will only perform a soft credit check that won’t affect your credit score.
3. Compare APR, not just the interest rate
The interest rate is the amount you paid for borrowing the principal amount. It can be fixed or variable. The APR, on the other hand, is the broader measure of the cost of your loan, because it includes the interest rate plus the other costs like closing cost, origination fees, processing fee, etc, expressed as a percentage.
The interest rate is a way to measure your monthly cost but APR gives you a big-picture estimate as it shows the true cost of the loan. Make sure to ask your lender of what is included in your APR as not all lenders might disclose all the fees associated with your loan. It will help you make an accurate comparison and determine which lender offers the cheaper and best loan rate.
4. Opt for Shorter Personal Loan Term
Longer-term loans that usually take five to seven years to be repaid tend to have higher rates. Lenders consider the risk to be higher than short-term loans. The faster the borrower repays the loan, the lesser the risk the loan carries.
Moreover, long-term loans are more expensive since the interest accumulates longer. So, if you want to get a cheaper personal loan, opt for the shortest personal loan.
5. Add a Cosigner
If you are approved for a loan but you have a fair or poor credit score, you are likely to be charged with higher interest rates. How to avoid this? Consider adding a cosigner with a good credit score to your loan application.
When you add a cosigner to your loan, the lender considers both you and your cosigner’s credit history and other financial information. It allows you to “borrow” the good credit score of your cosigner. He/She can help you qualify for the best personal loan rates.
When hunting for the lowest possible loan, check your rates with as many lenders as you can. Make sure to ask your lender of all the costs associated with your loan. Opt for short term loans if possible. If you still have time, work on improving your credit score. However, if you need the money immediately, consider adding a cosigner as he/she can help you secure the best personal loan.