A loan is a common solution for anyone (individuals or business owners) in need of additional funds. Loans are versatile, giving you the extra cash that you need to achieve a specific goal.
When you apply for a loan, you are assigned an interest rate. Most people accept the interest rate and deal with it. Did you know that it might be possible to get a lower rate than the one that you’re assigned? Here are a few tips that can help you to get the best interest rate on your next loan.
Check Your Credit Report
Before you start looking for a loan, you need to know your credit score and review your credit report. Your credit history plays a crucial role in determining what rate your loan is assigned. Better scores get better rates.
You are entitled to one free credit report every year. Request a copy of your report and look it over carefully. Mistakes happen. When they do, they can significantly impact your score. If you come across any mistakes, report them immediately to dispute them.
If there are no mistakes on your credit report (or you have had them fixed) and your rate is still lower than you’d like, there are plenty of things that you can do to boost your score and improve your chances of getting a better rate.
Know What Affects Loan Rates
While your credit score is an important factor in determining your interest rate, it’s not the only thing. Several other variables can affect rates. These factors include:
- How much you request.
- The loan term you select.
- Your financial situation.
- If you choose a variable or fixed rate.
Shop Around, But Don’t Actually Apply
Don’t apply to the first loan company you come across. Instead, look at several different lenders. Instead of applying to multiple lenders, though. Doing so will trigger several hard inquiries on your credit report, which will cause your credit score to drop. Rather than applying, see if you can find out if you pre-qualify. Pre-qualifying for a loan only requires a soft inquiry, which won’t affect your score. You can get an idea of the rates you might get, allowing you to find the best potential lenders for you.
Go in with a Competitor Offer
If you have a preferred lender that you want to work with but their rates are a bit higher than that of a competitor, use the competitor’s offer to see if your top choice is willing to budge. Not sure how to effectively negotiate with a potential lender? Consider negotiation training. With some training, you can learn how to prepare for speaking to the lender and propose your offer. If the lender really wants your business, the company may be willing to meet (or even do better than) the rates offered by the competitor.
Consider a Co-Signer
While it is possible to get a loan with a less than perfect credit score, you’re much more likely to face higher interest rates. Taking steps to improve your credit score can help to improve your potential rates, you might not have the time to boost your scores before you apply. In such cases, you may be able to secure a better rate by applying with a co-signer.
When you apply with a co-signer, his or her credit history, credit score, and financial information is taken into consideration. A co-signer with a better score can help increase your chances of a better rate. In some cases, a co-signer can help you qualify for a loan you might not be able to qualify for on your own.
A loan can give you the funds that you need to achieve a specific goal. Applying for (and accepting) the first loan you come across, however, could end up costing you. Instead, you should shop around and speak with different lenders to ensure that you get the best rate possible.