Sometimes you just need cash. A medical bill pops up. You need to fix your car. It happens to everyone from time to time. When the need for cash arises, you have options. Personal loans are one of the best ways to pay off expenses or consolidate debt.
But like any loan, you can expect to pay for the convenience of borrowing money. The cost of borrowing is in the interest rate. That means it can pay off in a big way if you can find the best personal loan rates. Finding the best personal loan rates is often a matter of simply knowing where to look for the best loan options. Read on for some helpful tips for finding the best personal loan rates.
Installment loans cost less
You can find lots of places willing to lend you money. Your first impulse might be to pay using a credit card you already have or to take out a cash advance on a card. If you choose that option you are going to be paying dearly for the money you are borrowing. Credit cards have very high interest rates, and special offers on low interest rates often don’t apply to cash advances which will charge you high interest rates and fees.
Additionally, credit cards don’t have a set number of payments. You will make minimum payments for a very long time to eventually clear the original loan or charge. Installment loans, on the other hand, offer you a set amount of money for a set amount of time with set payments.
You make installment payments every month for a set amount, much like a car payment, and when you’ve made all of the payments the loan is clear. The structure of these loans means you will pay less over time and you can look for lower interest rates as well.
Secured loans offer lower interest rates.
Banks take on some risk when they lend money. They pass that risk onto customers though the interest that they charge. The riskier the loan, the higher the interest rate. An unsecured loan is one that is made based on the borrower’s credit score and calculated ability to repay. A secured loan is one that is tied to collateral like a car or mortgage.
A secured loan, like a line of equity from your mortgage, is much less expensive in most cases than an unsecured loan. This is because the bank is taking less of a risk. If you fail to make the payments on the loan, the bank will simply take your home as payment. The same is true for a title loan. Customer fails to make payments? The bank takes his car.
The bank may have little risk in a secured loan, but the borrower has quite a bit. If a situation occurs where you can’t make regular payments, you’re at risk of losing your home or your transportation. Secured loans also take longer to set up because there is additional paperwork and there may be appraisal appointments and other delays. Many would-be borrowers don’t feel a secured loan is worth the lower interest rate due to their own risk and the delay in funding.
Shorter loans offer lower interest rates.
Banks and lenders determine interest rates for personal loans based on risk. The lower the risk, the lower the rate. One way to find a lower rate is to shorten the payment terms. Rather than paying a loan off in 48 months, shorten it to 24 months or even 12. The faster the loan, the less risk exposure for the bank that you won’t pay. The bank will then offer you more favorable terms hoping you will take the shorter, safer personal loan.
Provided you can work the monthly payments into your budget, the personal loan with the shorter term might be the best option if you are looking for the lowest rate. It’s important to remember, of course, that the shorter the loan repayment terms, the higher the monthly payments will be.
Shop around for low personal loan rates.
You can get personal loans from many places and they all offer their own terms. That means to find the lowest interest rate, you will need to see multiple loan offers from various institutions to make comparisons. Personal loans are available from traditional banks, online lenders, and credit unions.
You can submit individual applications to multiple lenders if you’d like to see terms from specific banks or credit unions. But you can also use a loan aggregator service to submit one application to multiple lenders for comparison purposes.
The loan aggregator will submit your application to its partners based on your credit score and needs and you will be given multiple offers to consider, often within minutes of completing the application. Many borrowers find these services to be the most efficient route when searching for the best personal loan rate.