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Finding the best rate on a personal loan can save you thousands. Keep reading to learn how to approach rate shopping.
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If you’re going to take out a personal loan, you’ll want to be sure you get the best possible rate. After all, the higher your interest rate, the more it’s going to cost you to borrow and the harder it will be to pay back your loan over time.
You should get multiple quotes and shop around to ensure you keep the monthly payments coming out of your checking account as low as possible. But how do you do that? Just follow these simple steps.
1. Decide on your desired loan terms
The first key step to shopping around is to decide how much you want to borrow and what your desired loan term will be. You need to decide this first, so you can:
Make sure you find a lender offering your desired repayment timeline and that will allow you to borrow the amount you want. Lenders have different minimum and maximum loan requirements and different timelines, so there’s little sense in applying with a lender that won’t offer the loan you’re looking for.Compare loans accurately. The amount you borrow and the loan term you choose is going to affect your interest rate. It makes sense to get quotes for the actual loan terms you’re looking for, so you can get a realistic assessment of what the loan will cost.
You can decide how much to borrow based on what you’re getting the loan for. For example, if you’re borrowing for a home improvement project, get quotes from your contractor to see how much you need to borrow. Your loan term, on the other hand, could be shorter if you want to become debt-free sooner and keep total interest costs down, or longer if you want lower monthly payments and don’t mind paying more over time.
You can use a personal loan calculator to get an idea of monthly payments for your desired loan amount at different loan terms so you can decide what makes sense for you.
2. Get quotes from at least three lenders
The next step is to get quotes from different lenders. You should try to get at least three quotes to get an accurate picture of what rate you should be charged. Try to find a lender that’s going to give you a quote without a hard credit check. If you get an inquiry on your credit report, this can adversely affect your credit score and actually make borrowing more expensive going forward.
When you get quotes, input the loan amount and loan terms that you decided on so you can get an accurate picture of exactly how much the lender would charge for your specific loan.
3. Look for lenders that cater to borrowers like you
It’s best to get rate quotes from lenders that would actually give you a loan. Lenders have different qualifying requirements. For example, while some offer loans only to very well-qualified borrowers, others have less stringent requirements.
If you have great credit, you’re going to get the best rates from a lender that is selective. If your credit score isn’t as strong, look for lenders promising affordable options even to people without perfect credentials.
4. Compare key terms to decide on the right loan
Finally, when you get quotes, be sure you compare all of the terms of the loan, including:
Any origination fees you’ll be charged upfrontThe annual percentage rate (APR), which reflects total borrowing costs each yearWhether there are prepayment penaltiesThe timeline for loan repaymentThe amount you’re allowed to borrowHow quickly your loan will be funded
By looking at all of these criteria, you can successfully find the right personal loan for you. Then you’ll just need to apply for it, receive your funds, and begin paying back the loan on schedule.
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