How can I be sure I’m getting the best interest rate for a personal loan?
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UPDATED: Mar 21, 2022
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Since most personal loans are unsecured—meaning they are not backed by anything aside from a borrower’s promise to pay—their interest rates tend to be higher than rates for mortgages or auto loans.
Because there is virtually no collateral for a lender to claim in the event of default, lenders reserve unsecured personal loans for borrowers with higher credit scores. Those they approve for a personal loan are then offered different rates depending on how good the applicant’s credit is.
Credit scores are determined through very complex and private formulas, but they are generally affected by a borrower’s payment history, length of payment history, current debt, lines of credit and types of credit used.
If a borrower’s score is low, there are ways to improve credit scores. This process may take some time, but the savings can equate to thousands of dollars when it comes to obtaining large loans in the future.
While improving your credit score is not immediate, once you begin shopping for a loan, fighting for the best interest rate can be.
Like all purchases, it’s important not to forget about the power of shopping around. Remember, lending is a business, and, as with all businesses, there is competition. Regardless of your credit score, make lenders fight for you.
Thanks to the Internet, done are the days when you would have to travel to different locations or make phone call after phone call to hear a lender’s pitch. Instead, most of the shopping-around work can be done in a matter of minutes, from your very own home.
By filling out a quick online form you can receive quotes from multiple lenders and can rest assured you will find the best personal loan rate possible.