7 Best Personal Loan Tips to Get You the Best Interest Rates in 2024
While looking to secure a personal loan, one of the major factors to be taken into consideration would be the interest rate. A few percentage points of a lower interest rate could make a huge difference in the money you are able to save over the life of the loan. Getting the best interest rates does take some careful planning and a good understanding of the way lenders assess your application. Here are the top 7 personal loan tips for securing the best interest rates in 2024.
1. Figure out your credit score.
Your credit score is the key factor lenders use to set interest rates for loans. A higher credit score can help you get a low interest rate because lenders see you as a reliable borrower. Look at your credit score and take steps before you apply for a loan. Pay off your existing debt, don’t open new credit accounts, and make sure your credit report has no mistakes.
2. Shop Lenders
Interest rates can differ by a significant margin among lenders. You would not want to accept the first quote that comes your way. You can compare rates among banks, credit unions, and online lenders. You can compare loans on websites to figure out which gives the best rates for your credit profile.
3. Choose a Shorter Loan Term
Although the longer the loan term, the lower the monthly payments, it usually has higher interest rates. The shorter the loan term you can opt for—say, 3 years instead of 5—the better the interest rate you will get. Another important thing is that with a shorter loan tenure, you’ll pay less in interest over the life of the loan, hence saving money.
4. Think About a Secured Loan
If you can’t get a low interest rate on a personal loan, a secured loan might be a good option. Secured loans use your car or savings account as collateral. This lowers the risk for the lender and often results in a lower interest rate. Just remember, if you don’t pay back the loan, the lender can take your collateral.
5. Improve Your Debt-to-Income Ratio
The lender will consider your debt-to-income ratio to determine your ability to repay a loan. A low DTI means you can maintain your income and debt payments; therefore, lenders are more likely to approve your loans. Try reducing your DTI before applying for a loan to improve your chances. You do this either by paying off debt or earning more, or both.
6. Take advantage of auto-pay discounts
Many lenders will lower your interest rate if you set up auto-pay, allowing your monthly payments to be taken out of your bank account automatically. Sure, the discount is minor—usually 0.25 percent—but it does add up to big savings over the life of your loan. Just be sure to ask your lender about this option.
7. Steer Clear of Applying for Too Many Loans at Once
Each time that you apply for a loan, it runs what’s called a hard inquiry on your credit report, which can bring down your credit score temporarily. More to that, too many hard inquiries within a very short period may mean to the lender that you are in a stage of financial distress, which may garner higher interest rates. This can be avoided if one applies for loans within a time period of focused inquiry, usually within 14 to 45 days, so that most credit scoring models treat them as a single inquiry.
Conclusion
Getting the most competitive interest rate on personal loans in 2024 is a matter of how well you prepare yourself and act wisely. Knowing your credit score, comparing lenders, opting for a shorter loan term, considering a secured loan, improving your debt-to-income ratio, taking advantage of auto-pay discounts, and avoiding multiple loan applications are some of the ways to get a loan at a very favorable interest rate. Much of the effort invested before applying for the loan pays out in significant savings over time.