Learning how to find low interest loans would definitely give you a lot of benefits. Thus, before you even sign an offer from a financial institution, make sure you have already done your research and have compared one offer to another to ensure you are signing a loan with the lowest possible interest rate.
At some point in our lives, we’ll be caught in a situation wherein we need financial help. Emergency situations, in particular, do come, and while you thought you have prepared for it, sometimes, you will be bombarded with the truth that what you have is not enough.
It is during these circumstances or situations when we need someone else’s help in order to fulfill certain financial obligations.
According to a report from Debt.org by America’s Debt Help Organization, it says that in 2018, American households hit a record-breaking $13.21 trillion in debt. This debt was shared by about 300 million people in the country – regardless of ages, and statuses in life.
You see, if you are thinking of borrowing money from a financial institution, know that you are not alone and that you are not the first who’s going to do this. It’s a totally normal human situation.
In fact, as you read this, there are thousands of other people out there sealing a loan application with their lenders.
Speaking of lenders, lenders are all over the place. Financial institutions such as banks, credit unions, even online lenders are readily available anytime someone needs financial help. They are the answer to those who are in need of money for an emergency, for personal, or even for business purposes.
While there are so many options where to borrow money from out there, as a borrower, it is important that you know how to find low interest loans.
As mentioned, it’ll surely give you a lot of benefits. Of course, the major benefit would be not spending rather wasting too much money paying off a high-interest rate.
So, having said that, we are going to share with you some essential information that we thought you need on finding low-interest personal loans.
In particular, we are going to talk about the following:
- What are low interest loans?
- How do personal loan interest rates work?
- Where to find low interest loans?
- Who qualifies for low interest loans?
- What to do if you do not qualify for low interest loans?
- What are other alternatives to personal loans?
WHAT ARE LOW INTEREST LOANS?
To be able to know how to find low interest loans, you got to find out first and foremost what a good rather what a low interest loan is all about. This will serve as your guide as you look for the best loan deal.
Generally speaking, the ideal interest rate for a personal loan is the one that is lower than the national average, which is currently at 9.41% based on the latest Experian data.
Before we move on, please take note that a loan’s interest rate varies from one financial institution to another. It’s not like the same for everyone, which is why we encourage borrowers to scout, to shop for loan offers, and then compare after. That is so you get to know which offer is the best.
Anyway, normally, lenders provide a range of interest rates they charge on a specific loan type. Usually, though, lenders advertise loan interest rates that range from 4.99% up to 36.99% APR.
As we mentioned a while ago, the exact interest rate that the bank offers you will depend on several factors. Lenders decide based on various qualifications that are related to the borrower’s creditworthiness.
So, if you have bad credit, most likely, banks and other lenders will offer a higher interest rate, or worse, deny your loan application.
Meanwhile, if you have excellent credit, the more likely you are to receive a lower interest rate.
As you can see, if you want low interest loans, you better work on your creditworthiness. Otherwise, do not keep your hopes high.
Before we move on, here’s a quick video by Let’s Talk Money! with Joseph Hogue, CFA about the lowest personal loan rates regardless of credit score:
HOW PERSONAL LOAN INTEREST RATES WORK?
Most financial institutions offering loans or personal loans in particular use a risk-based pricing model. The model is used to be able to determine whether or not the institution or company will approve your application or not, and of course, on what interest rate to charge you.
Generally, money lenders — whether it be banks, credit unions, or online lenders — look at the borrower’s employment and income information, credit profile, as well as debts and other related factors in order to know if the borrower does have the capacity to pay back the money being loaned.
Normally, it goes like this —
The likelier you are to pay on time, the lower your interest rate will be. On the other hand, the chance of getting a higher interest rate or getting denied is higher if you seem to be too risky of a borrower.
The higher rates help cover collection costs, as well as other losses that may be incurred by the lender when a borrower defaults.
To put it simply, if you have a good record — you basically have nothing to worry, because the likelier you are to get or be offered with low interest rate loans.
WHERE TO FIND LOW INTEREST LOANS?
Part of learning how to find low interest loans is knowing where to actually find them.
Just so you know, there are a lot of lenders out there who are willing to provide low interest loans. The good thing is, you do not even have to look outside your home. All you need to do is open your computer or use your smartphone and start your search online.
There are a lot of comparison websites out there that offer reviews as well as access to different financial institutions. By using such websites, you can review potential rates. More so, you can even choose to enter some of your information to be able to get a rate quote.
Now, ones you have a few rate quotes, you can start comparing them from one another, or compare them to what is available or being offered by a local financial institution.
You may also consider visiting your bank, and then ask about personal loan options. You may also do the same with local credit unions.
Here’s an equally important tip, when comparing quotes or interest rates from different financial institutions, make sure also to look at other factors like fees and charges. In some cases, a financial institution would offer low interest rates, but apparently, they do have high fees like origination fees, and charges.
When looking for a low interest loan, make sure it also has low or no fees and charges at all. That’s the best deal ever.
For your reference, here are three of the most common places where you can avail low interest loan:
BANK – Banks are very accessible. You’ll find one almost everywhere you go. The thing about banks though is that you need to apply for the loan personally. Although there are some banks that have already innovated and are already offering products and services online. The downside of banks is that they usually have higher rates compared to credit unions or online lenders.
CREDIT UNIONS – Credit unions are not-for-profit, member-owned cooperatives. Compared to other financial institutions out there, you will usually find the best rates in credit unions. Also, they are more likely to give approvals to loan applications from borrowers with poor credit history or those with no credit history at all. The downside is that you need to be a member and pay for a membership fee if you want to avail of the benefits including getting a loan.
ONLINE LENDERS – If you do not want to get into the hassle of applying for loans in banks or you do not find a credit union nearby, or you just badly need the money as soon as possible, online lenders are the best option. However, online lenders tend to have high interest rates as well as compared to credit unions. Also, while some of them do not look into your credit history, they may charge you with fees.
WHO QUALIFIES FOR LOW INTEREST LOANS?
In order to find low interest loans, you have to take a lot of factors into consideration. These factors are significant in order for you to get the interest you are hoping for.
Take note also that every lender has their own set of criteria. Yes, it’s not always the same. What a bank looks for in a borrower may not be the same as its competitors.
Lenders decide who gets a loan, and also the interest rate they receive based on some factors, which include the following:
Among the many criteria out there, perhaps this is something common among all most if not all lenders. Normally, lenders would look at your creditworthiness. Do you have a good credit score, or do you have a bad one or none at all?
Usually, this is how it goes — if you have a high credit score, the more likely you are to get a low interest rate. Meanwhile, if you have a poor credit score or no credit at all, the more likely you are to get a not-so-good or a higher interest rate.
If you are on the latter, we highly recommend you work on your credit score. You may do so by paying bills on time, as well as paying any existing debts. These and more can definitely boost your credit score.
You are probably wondering why even check on credit history if they have already looked into your credit score?
Apparently, there are lenders who still look into your credit history or credit report apart from your credit score. Basically, they look into what accounts you have, how long have you had them, and how you manage these accounts.
Yes, it’s basically looking at your attitude towards your accounts. Making sure that you will be a good and responsible borrower to them as well.
Another important factor that lending institutions look into is your employment. Of course, they have to make sure you have the capability to pay off the loan.
Lenders look at your employment to make sure that you have a stable job, which means stable income.
Apart from your employment or knowing your source of income to ensure that you have a source of money to pay off the loan, lenders also look into your debt-to-income ratio.
They basically look at your monthly income, and then, compare it to your monthly bills and other obligations. If a large chunk of your income goes toward making debt payments, this may give lenders the impression that there may be a possibility that you will struggle to repay your loan, which may eventually lead to denial of your loan application.
Again, as mentioned, there are so many factors that lenders take into consideration before the approval of a loan application is made.
However, the above-mentioned factors are the major indicators. We highly recommend you focus on these factors if you want a good rather a favorable result to your loan application. In this case, if you want a low interest loan to be granted to you.
But most importantly, focus on having an excellent credit score as it greatly affects the interest rate of your loan.
WHAT TO DO IF YOU NOT QUALIFY GOT LOW INTEREST LOANS?
So, you already know how to find low interest loans, however, you found out you do not qualify for a low interest loan. What to do now?
If you get a high interest rate for a loan and let’s say you really badly need that loan, what you can do is consider getting a co-signer. A co-signer with an excellent credit score may help you get a lower interest rate.
For your understanding, a co-signer refers to someone who is responsible for paying off your loan should you stop making payments.
To be realistic, though, finding a co-signer may be a little challenging. Although, ideally, your co-signer must be someone related to you — like your spouse, your child, your parents, etc. He or she must be willing to take charge should you fail to continue making payments.
When getting a co-signer, it is important that you understand that it might put a strain in your relationship should you fail to fulfill your obligations — unless of course he or she is a family member. Although sometimes even family members quarrel because of this kind of situation.
Apart from the damaged relationship, your failure to pay off the loan will also greatly affect the cosigner’s credit score.
So, yeah, make sure to think real hard about this before making a move. Make sure that if the loan is approved, you are capable of paying it off to avoid any damages.
WHAT ARE OTHER ALTERNATIVES TO PERSONAL LOANS?
Let’s assume you already exerted all your efforts in finding a low interest rate loan, but you still fail to get one. What other options do you have, then?
There are a lot of other ways to get the money that you need even without getting a low interest loan.
Here are some of your options:
Ideally, your savings particularly your emergency fund (if you have one) is the perfect source when you need to pay for emergency costs. By using your savings, you save yourself from getting loans and getting indebted.
Once you are done paying off the money that you need, make sure to replenish it as soon as you can.
There are a few credit cards that can actually match personal loan APRs. So, if you got denied for a low interest loan, you may consider getting a credit card instead.
Having a credit card is actually helpful especially if you need the money for emergency options.
FAMILY AND FRIENDS
Another option is getting help from family and friends. You never know, there may be family and friends who are willing to lend you money or maybe even give you money without asking anything in return.
This is usually helpful when you need money for paying off medical bills.
As you can see, there actually a lot of other options out there should a low interest loan is denied.
Usually, personal loans are unsecured loans or loans that do not require any collateral. However, if unsecured loans seem impossible, you may consider getting a secured loan instead.
Unlike unsecured loans, secured loans require collateral or any asset that you have. Anything of value.
If you are getting a secured loan for purchasing a home or a car, these assets automatically become collateral to the loan.
Another option is to consider selling your belongings particularly unused stuff at home. This will definitely help cover the cost you need to pay. Check whatever you have currently and see if you have enough to help cover the cost.
You can sell these items either through a garage sale or through online marketplaces.
FINAL THOUGHTS ON HOW TO FIND LOW INTEREST LOANS
You see, there are a lot of things you need to consider in order to know how to find low interest loans. You need to know where to find them – there are banks, credit unions, as well as online lenders. But more than that, you need to keep in mind the qualifications in order to get low interest rates.
Having read all that, do you think you have what it takes to get a low interest loan?