Before signing up for a loan, it is vital to find out how much cost you will incur. That involves asking yourself hard questions.
As you compare loans, rates, and periods of repayment, ask yourself questions like;
a) What is a reasonable interest rate for a personal loan?
b) Can I get low-interest loan rates?
c) How does the repayment period affect the interest rate I’ll get? And many more. Unlike business loans, personal loans should have reasonable rates.
Interest Rate Calculation
The interest rate is determined using two factors. The factors include; the principal amount and repayment time. In general, the interest rate equals to 100% by the interest amount payable, divided by principal amount multiplied by repayment time.
If you look at the equation critically, it is clear the other factors have a significant impact on the rate a lender will give you for a personal loan. Therefore, getting low-interest loan rates is possible if you do your mathematics well.
There are different types of interest rates, and that affects the overall cost of the loan. Type one is fixed, while type two is the variable interest rate. Normally, a fixed interest rate makes your monthly repayment interest constant. Therefore, the interest amount you will pay from the first to the last month of repayment will be the same.
On the other hand, a variable interest rate reduces the amount of interest repaid as the principal amount reduces. It takes the reducing balance approach. This means, as your loan decreases, the interest repaid goes down too.
Comparing the two, the latter is the better option. You realize as time goes by, the interest rate reduces. At the end of the day, the reducing balance interest rate qualifies to be a low-interest loan rate.
Interest Rates Range
The market offers a wide range of interest rates. Different lenders offer different rates according to their calculations, vision, and mission. While some focus on giving clients the best credit service, most are interested in making profits.
Currently, there exist interest rates as low as 6% and those as high as 36%. Why should someone get a 6% rate while another 36%? Many factors are considered when it comes to interest rates. They include:
- Credit score
The above determinants are the most looked at by lenders. Basically, if your credit score is high, then you are guaranteed a lower interest rate. Scores above 800 are considered excellent. Therefore, lenders easily give personal loans to scores of 800 and above with confidence at a flat interest rate.
If your score is between 700 and 750, you will still get a low-interest rate but slightly higher than the excellent rated borrower. For those with credit scores of less than 700 but above 600, be sure to get a moderately high-interest rate.
The rest with poor credit scores will surely get the highest interest rates. Rates as high as 36%. This is for mitigation purposes by the lenders. One should, therefore, ensure they have a good credit score before seeking a loan if at all interested in low-interest rates.
To get the best rates on personal loans is easy yet complicated. What makes it easy? The fact that you have control over the factors determining interest rates is good news. What should you do to get a lower interest rate?
1. Go slow on loan applications: Every time a credit search is done on you, credit bureaus put a hard pull on your name. As a result, your score drops. The maximum number of searches on your name should be 2 in a year. Going beyond that will harm your score.
2. Pay all your debts: Whether on the blacklist or whitelist, the most important thing to do is pay your debts. The rest can be sorted out later. The fact that you’ve cleared all your debt is enough to get your credit score back on track.
3. Improve your credit-debit ratio: Lenders are more than willing to give loans to people who have money already. A good credit-debt ratio will increase your credit-debit ratio. Do you know what that means? A lower interest rate.
4. Stay alert: Many cases of rogue lenders blacklisting clients who have no debts come up. Therefore, do not be surprised if one day you’ll find your credit score in the danger area over a loan you never borrowed. The good news is you can raise the issue with credit bureaus and get your name cleared.
Lenders Offer a Good Interest Rate for a Personal Loan
Finding a suitable lender with reasonable offers in terms of interest rates is hard. Below is a list of lenders who will have no problem giving you a low-interest rate. Read on.
Credit unions are some of the few lenders giving the best interest rates for a personal loan. Since most of them are not after profits, they have no problem giving their members low-interest rates. 6% to 12% is a reasonable interest rate for a personal loan. Credit unions will easily give you a loan with such low rates.
Traditional banks have always been the best financial service providers. The only challenge is the many processes you have to go through in order to acquire a loan. With banks, you have to be compliant, and with a good credit score. That notwithstanding, banks will give you a reasonable interest rate for a personal loan.
Some online lenders
Most online lenders issue the highest interest loan rates. This is understandable, considering the high risk involved. Some online lenders also give unbelievably low-interest rates for payday loans.
The current prevailing interest rates for a personal loan range between 6% and 36%. An excellent interest rate for a personal loan should be between 6% and 12%. Although to get the best prices, you need to have a good credit rating, stable income, and permanent employment. Finally, credit unions, banks, and a few online lenders are the common sources of low-interest rates for personal loans.