Whether you plan to consolidate higher interest credit card debt, pay for unexpected car repairs or home repairs, or even fund a trip, finding the best low interest rate personal loans may save you big bucks. Wondering how to qualify for the lowest rates out there? Here are a few tips to review before applying for that loan.
Have Great Credit
To qualify for the best interest rates on personal loans, it pays to have a great credit score and a solid credit file. Lenders will conduct a credit check and take a look at your credit score as part of the application process.
If you haven't already ordered your free annual credit report from AnnualCreditReport.com, do so before applying for a personal loan. Review the details of your credit report carefully, paying special attention to the sections on payment history, debt usage, credit age, and inquiries. Showing you have a good history of making payments in full and on time, reasonable debt usage and have few inquiries (many credit inquiries could suggest you're a habitual credit seeker – not a good thing) may help you qualify for a lower interest rate on a personal loan.
Have a Low Debt-Service Ratio
To improve the chances of qualifying for the best low interest rate personal loans, work on increasing your income and lowering your other debt. This improves what's known as your debt-service ratio or debt-to-income ratio, which indicates how much of your income it takes to make your debt payments. A lower ratio suggests you'd be a lower risk borrower, and more likely to pay back the loan, so the lender may be more likely to offer you the lowest lending rate.
Present a Solid Employment History
In addition to showing you have a good payment history and are responsible for paying back money you borrow, presenting a solid history of employment may also improve your chances of qualifying for low interest rate personal loans because it shows commitment and responsibility. Your lender will likely ask for your employer's name and address, and how long you've been there. If you're self-employed, be prepared to verify your income via your personal tax returns, available through the IRS Income Verification Express Service.
Shorten Your Loan Term
Another way to get the lowest rate possible on a fixed rate personal loan is to choose a shorter term, say one or two years instead of three or four years. The term is the time it takes you to pay off the loan, and short term rates are often lower than longer terms, though they do also come with higher monthly payments.
Shop Around For the Best Low Interest Personal Rate Loans
It pays to shop around when you're looking for the best low interest rate personal loans, as rates can vary widely from the many lenders that offer them, such as bricks-and-mortar banks, credit unions, finance organizations , and even online financial companies and peer-to-peer lending sites. Always comparison shop different lenders when shopping for a personal loan.
Use this handy personal loan comparison tool to help you find the best loan for your situation.