How do I get a low-interest personal loan?
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UPDATED: Nov 20, 2012
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There are several ways that prospective borrowers can get low-interest personal loans.
A personal loan is a type of financing that usually amounts to several thousand dollars. They are either secured or unsecured, both of which carry their own pros and cons.
Secured personal loans are backed by collateral, such as a home or car, which lessens the risk that lenders face in giving out money. Unsecured personal loans, on the other hand, do not require collateral, but, as a result, they’re harder to qualify for.
It is difficult to find a low-interest unsecured personal loan since the lack of collateral makes the transaction risky for lenders. Therefore, prospective borrowers who want financing with a low-interest rate will have better luck offering up collateral for a secured personal loan.
The quality of the collateral offered can highly impact the interest rate as well. For example, a borrower that offers their home as collateral is more likely to get a better interest rate than a borrower who only offers a late-model vehicle. Prospective borrowers interested in backing a personal loan with collateral should remember that in the event of default, the lender will seize the collateral, legally own it, and sell it for a profit.
Low-interest financing is really only offered to borrowers with good credit scores. A credit score shows how well or poorly a borrower has managed their debts. Since borrowers with poor credit will likely be declined or only offered high rates, they should focus on raising their score before submitting an application.
Additionally, lenders will only approve applicants that have shown they hold a steady job or have steady income. It is important for prospective borrowers to have a solid history of employment or income-flow in order to show lenders that they will be reliably capable of making monthly payments.
Whenever a prospective borrower applies though, they should first do so with their personal bank or credit union. Lenders often favor long-standing customers. Therefore, prospective borrowers who have been customers of a bank or credit union for an extended period of time are likely to find that lender more accommodating.
One notable exception to these general rules-of-thumb applies to government-backed disaster loans. Usually reserved for businesses and non-profits, disaster loans are sometimes offered for personal use. These tend to be much easier to qualify for, come with very low rates, and they usually do not require any collateral. By following loan-related news on disaster areas, borrowers can see if they’re location is eligible for one of these products.
Finally, prudent borrowers seeking the lowest interest rate should apply with multiple lenders before deciding on an offer. Since different lenders have diverse policies and protocols, it is in the best interest of borrowers to compare and contrast various offers in order to secure the best rate.