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.