Before you apply for a personal loan, it is best to research the interest rates offered up by several lending companies. When you compare personal loan rates, you might find that one company offers you a significantly lower interest rate than another.
The process is similar to buying a car or purchasing a home – would you buy the first one that you see? Personal loans should be no different. Taking time to get multiple quotes will help you narrow down your options and find the best rate possible.
Personal loan rates can greatly vary between lenders. Similarly, these rates are easily influenced by a few factors that you have the power to change. The good news is that even if you get a quote with a high rate, it’s not permanent.
There are many ways to get a great personal loan rate and improve your chances of approval.
Raise your credit score: Personal loans are affected by your credit. Lenders want to make sure that you have the means to repay the loan. Interest is one way a lender can protect itself against forbearance. So, if the lender is confident in your ability to pay, your interest rate will be lower.
It might take some time, but improving your credit score is possible. Here are a few simple things you can do to boost your score.
- Make on-time bill payments
- Reduce or eliminate credit card debt
- Check your score often to look for mistakes
Build a solid employment history: Personal loan rates are also dependent on your ability to generate income. But it’s not just about having a job, it’s about commitment and reliability. Staying at one job shows lenders that you are a trustworthy employee, which means you’ll likely be a trustworthy borrower, too.
Balance your debts and income: If you have a high debt-to-income (DTI) ratio, lenders will likely charge you a higher interest rate. DTI is an expression of all of your monthly debts compared to your monthly income. If most of your income is spent paying bills, lenders may worry about your ability to repay the loan.
You can lower your DTI ratio over time by paying more than the minimum payment each month, helping you eliminate the debt faster. You should also avoid taking on more debt as you try to lower your DTI ratio.