Getting a good interest rate on personal loans can be tricky. For starters, most people aren’t really sure what a good interest rate is, and they often place too much trust in loan officers. To get the best interest rate, you only need do a little research up front and then negotiate for the best deal.

Know The Going Rates

It’s always a good first step to check the interest rates others are getting on personal loans. The easiest way to find that information is to look for publicly displayed interest rates on personal loans (also known as signature loans) on various bank websites. Make a list of the rates you find, putting them in order from lowest to highest.

Some sites, such as Bankrate.com, also list the going interest rates for a variety of consumer financial products, but they don’t track rates on personal loans. You can still check to compare rates on credit cards and auto loans, though. The rates for personal loans should fall somewhere in between.

Know Your Credit Score

In addition to knowing what interest rates are doing, you’ll need to know your credit score. Lenders use credit scores to prequalify you for loans. Generally, a credit score of 720 or higher is needed to qualify for the best terms. You can still get good rates with a credit score of 680 or above, but you may not get the best terms available. With a credit score below 680, you may have difficulty qualifying for a personal loan, since it’s a form of unsecured credit.

Unlike your credit report, which is offered annually for free, you’ll have to pay a small fee to get your credit score. According to most experts, though, it’s worth the extra cost. Knowing your credit score will help you figure out what sort of terms you might qualify for before you even apply. In addition, understanding how your credit score is calculated can help you bring the number up. If you prefer, you can also estimate your credit score, although there’s no guarantee of accuracy with that method.

Negotiate For The Best Deal

Now you’re armed with all the information you’ll need in negotiations. Start by applying for a loan with the lender that offers the lowest rates, or go to your local bank or credit union. If they say you don’t qualify for the best terms, but offer you a higher rate, remember that you don’t have to take whatever they offer. Be kind, but don’t sign any paperwork until you’ve had a chance to try other lenders.

Try moving on to the next lender on your list. Their interest rates may be slightly higher, but their qualification criteria could be more relaxed, meaning you’ll get their best rate. Compare terms with the offer from the first lender, and choose the best interest rate. Of course, if you aren’t satisfied with either offer, you can continue going down the list until you get the best rate.

But, if your credit is good enough to qualify for a personal loan, you can save yourself a boatload of money. Not on interest, so much as on insurance. You might even end up paying a bit more in interest for a personal loan than you would for an auto loan of the same amount. But the difference you can save by not having to have full coverage insurance more than makes up for the little bit of extra interest.

Of course, buying a car this way involves a bit of a different process. Instead of going out to buy a car, and then working the financing out, go see your bank first and see how much of a personal loan you would qualify for. Then go out and shop for the car.

Another advantage to car shopping this way is that you go into it knowing what you have to spend. We don’t recommend buying through a dealership if you’re buying an older car with lots of miles on it. Trust us, they took that used car on trade or bought it at auction from someone else who did, then hiked the price three or four thousand dollars. You’re better off combing the classified ads, or even driving around and looking for “for sale” signs.

But if you do buy a car from a dealership, pick one that is marked between one and two thousand more than you have available. Don’t talk money until you pick out the car, then explain how you intend to use personal loans to pay for it, and how much money you have at your disposal. Make it clear that you will only take the car if you can have it for that amount out the door. Then, refuse to sway, budge, or even discuss other financing options. More often than not, you’ll drive away with the car.

Photo via Elsie esq.

No one’s insinuating that your bank or other financial institution shouldn’t make a profit. It is precisely because of the black ink on their ledgers that they are able to offer loans at decent rates. As a matter of fact, in general, the more profitable a bank is, the more reasonable rates you will generally find available on loans given there.

So, how can you tell when your banker is really in your corner? It has been well said that if you take care of the customer, he will take care of you. This is possibly truer in banking and financial services than in any other business. We’re all reasonably intelligent people. And, in general, we have no trouble picking up on it when someone is trying to sell us a bill of goods instead of helping us to get what we really want and need.

One example to look out for with lending institutions is the lending agent who wants to lend you more money than you want to borrow. Often, just like salesmen, loan officers are paid commissions. If a lending officer is trying to get you to take out more in personal loans than you are asking for, it should put up an immediate red flag. This guy does not have your interests at heart.

Another thing to look at is whether or not your bank is willing to take a chance on you if your credit is less than perfect. It’s easy to find yourself in a bad credit situation in today’s world, but many banks and credit unions are still willing to lend you money, especially if you have something for collateral. Of course, the interest rate may be a little higher if your loan is considered higher risk, but it is not impossible to obtain one. If it is impossible through your bank, perhaps it’s time to consider banking elsewhere.

Photo via 1Happysnapper (photography)

One of the things you need to understand, right off the bat, is that your credit rating is important now more than ever. While lenders will offer personal loans to borrowers with bad credit, you’re going to be facing terms that aren’t nearly as attractive as what other borrowers will get. For example, you might see an interest rate higher than 15 percent if you have some bad credit history.

On the other hand, people with a decent credit history may be in luck. Over the past year, lenders have actually dropped rates on personal loans for many people. In fact, if you qualify, you may be able to get a personal loan at a very reasonable interest rate, maybe even one that’s not too much higher than the rate would be on a secured loan, such as a car loan or home loan.

Because of this, you need to make sure you do what you can to keep your credit rating on the high end. The most important thing you can do in this regard is just to pay your bills, on time, every month. This can be a challenge, especially in the middle of a recession. However, if you want to improve your credit, that’s the number one thing you can do.

Another thing you can do to take advantage of these new low rates on personal loans is to correct errors in your credit report. Get a copy of your credit report and check to see if anything erroneous is on it. You can even get a copy of your credit report free once a year. If anything is amiss, contact the credit reporting agency with documentation that shows the error and they are legally obligated to correct it.

When you prepare to visit your lender to apply for a personal loan, realize that you’ll be asked what you’re going to use the money for. You need to be able to explain what you will spend the money on, as well as explain why you need the loan.

Finally, recognize that these new personal loan terms are often open to negotiation. If you’re in a position to negotiate the interest rate, for example, your lender might be able to find a way to help you out. This is especially true if you’ve been pre-approved for the loan, and if you’re dealing with a bank where you have other business.