The interest rate you pay on a personal loan could range anywhere from 5 to 50 percent. The interest rate will depend on the type of lender you choose to the risk the lender assigns to your loan request. Let’s learn how to qualify for the lowest personal loan rates.
Don’t Go for the Over-Priced Loan Products
Do you want a low interest rate on your loan? Don’t talk to payday lenders. Avoid title loans. In summary, stay away from lenders with a reputation for exploiting people with bad credit. You’d actually be better off taking a cash advance from your credit card and paying 35 percent annual interest on that loan than paying 20 percent a month on a payday loan. The solution is to research alternative lending options like installment loans and online unsecured loans.
Choose Lenders that Won’t Punish You for Your Credit History
Too many people choose a lender based on their low, stated rates. However, that may be the interest rate they offer people with good credit, not clients with bad credit. When they apply for the loan, they assume that the interest rate they’re offered is as good as it can get. In reality, lenders who prefer those with good credit will over-charge those with bad credit. The solution is to work with lenders who accept clients with fair or bad credit and don’t penalize them for that fact.
Another solution is to shop around for a personal loan just as you would any other purchase. Check out Match Financial’s lowest personal loan rates, and compare how lenders would treat you given your credit score.
Be Careful with the Request
Lenders use several factors to assess the risk associated with the loan. Their systems are intended to gauge your likelihood of repaying the loan on time and in full. If your request seems unreasonable, they’ll reject it. One of the factors used to determine your credit score is your debt to income ratio. If the new loan request is by itself enough to push your debt to income ratio above 40 percent, many lenders will reject it. This is why you should only borrow as much as you need. Your credit score also takes the number of accounts and payment history into account. Someone requesting multiple new lines of credit is considered high risk, because they’re taking on additional debt. You can actually run into problems with this if you try to submit multiple online loan applications in one evening, though you were rejected for several.
The solution to this is to be careful with your application, so that you don’t submit requests that are rejected out of hand. And when they say wait for the application to finish loading, be patient. Hitting the submit button multiple times could result in a duplicate submission, repeated hits on your credit report and a rejected loan application.
Be Thorough and Thoroughly Honest with Your Application
At least a third of mortgage applications have errors on them, some of which can lead to the loan application being rejected. We can assume that the error rate on online applications is higher, because people are more likely to rush through them. What mistakes do you need to avoid?
Ensure that the information on the loan application matches that on your ID and any other submitted paperwork. For example, use your legal name and the same one that appears on your ID on the loan application. Use a valid mailing address in the application, and make sure it matches what is on your ID. Note that this is why you should get your ID updated every time you move and as soon as possible after a name change. Fill in every field, and don’t use fake or made-up information. For example, don’t put a fake phone number in the phone number field. You may be trying to avoid collectors calling you, but you’ll miss verification texts they use to verify that you’re using a valid phone number and a real person.
Review the application before you submit it. Failing to select check boxes that you agree to their terms and conditions can prevent the application from being submitted. Failing to change drop down boxes from their defaults can cause problems, too. For example, if you leave the state drop down box empty, the address verification will fail. Leave the drop down box at the default first choice of Alabama, and your address verification will also fail. All you have to do to prevent this is to spend another few minutes reviewing the application for completeness and verifying that everything is correct. After all, reversing digits in your Social Security Number or address could cause the application to be rejected though they’d otherwise do business with you.
Dishonesty on an application will cause it to be rejected. Overstating one’s income is a common reason why loan applications are rejected. Failing to attach documentation that verifies your claims, whether it is your income or your identity, can result in loan requests being denied. Or they simply charge you a higher interest rate. That’s why no income no job loans came with incredibly high interest rates. You don’t want to end up in that category unnecessarily because you didn’t have a copy of your pay stub or tax return available.
Have a Plan to Repay the Loan
Have a plan to repay the loan before you apply for it. You don’t want to get caught in the trap of endlessly renewing loans because you can’t pay it off when it comes due. This is a common problem with payday loans. Nor do you want to have to pay a fee to extend the loan because you can’t make the payments. You’ll end up paying more in interest over the life of the loan, and you’ll be in debt longer. Know whether you’ll sell stuff, cut expenses or work overtime to pay off the loan so that you don’t end up hurting your credit with late or missed payments.
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