We live in a world where emergencies can appear at any time. Given the increasing cost of living and the many financial upheavals that we’ve experienced in recent times, the number of folks who have any reasonable savings that they can fall back on during these times has significantly reduced. The implication of this is that most people have to resort to seeking some form of credit advance to help them meet these emergencies.
Personal loans can be a way out in these situations. Sadly, they can also be traps that draw unsuspecting folks into the grip of debt from which they find it difficult to free themselves. In fact, many find themselves digging deeper and deeper into more debt in their attempt to climb out. This scenario can most often be traced to personal loans with high interest rates.
In this article, we will be providing a guide that will help you find personal loans with low interest rates (med lav rente) so that you won’t find yourself in this trap. Cheap personal loans can also help those already in deep debts to refinance their expensive loans with a cheaper one that will be easier to repay.
If this is something you’ll be interested in learning about, then stick with us as we take you through this guide.
What are Personal Loans?
Personal loans are credit facilities given to individuals to meet any financial need. This can range from taking care of medical emergencies to repairs at home, travel expenses or even loan refinancing. The use to which this kind of loan can be put to is determined only by the recipient.
A common characteristic of personal loans is that they are usually unsecured. This means that you do not require any kind of security or collateral to access this loan. For this same reason, the interest rate charged is often higher than other types of secured loans for obvious reasons.
How much interest rate you’ll be charged in each case will largely depend on your credit score. A good credit score will qualify you for lower rates while a poor one will mean higher rates.
Though personal loans are mostly unsecured, it is possible to have a secured type. This means offering an asset of value as collateral for this loan. If you can get this option, you can expect to enjoy much lower interest rates.
Other Factors that Affect Your Interest Rate
Aside from credit scores and offering some collateral, there are a few other factors that can affect the interest rate you have to pay on your loan. These include:
Loan Term – This refers to how long the repayment period will last for. Shorter repayment periods tend to have lower rates longer terms. Note however, that payment installment will be larger when you choose shorter repayment periods despite the lower interest rate.
Loan Amount – The amount you wish to borrow or the amount that is approved for you can also affect what it will cost you. These are things you should check out before accepting the offer.
Lending Company – Lenders will always have different rates, so the lender you choose to work with will determine if you will pay more or less in lending rates.
Prevailing Monitory Policy – Every country regulates inflation by raising and reducing rates. This will affect how much your lender will charge you for your credit facility.
By considering all of these factors, you can ensure you get the best deal on the loan you need at any time.
Before Applying for a Personal Loan
Before you start applying for a personal loan, there are a few things you need to understand and steps you should take. This is especially important if you want to enjoy the lowest rates possible. In this section, we will look at some of these things so that you can begin to implement them immediately.
Check Your Credit Score
Ignorance, they say, is bliss. The truth however is that it is usually a short-lived bliss as reality will always catch up with you. Not knowing and actively monitoring your credit score can come to bite you in the behind when you apply for this kind of loan.
Knowing your credit score helps you know exactly how to go about your loan application. There are a number of things that you can do to improve your credit score. They include the following:
- Paying bills on time – Paying your bills on time shows that you are financially responsible and so will positively impact your score.
- Keep your old accounts – A credit score is based on your credit history, so keeping your old account open gives you more history on which your score can be based. This may however not be applicable to you if the old account will not be favorable to your current score.
- Keep credit balances low – Aside from the fact that you need to pay off your credit card debts promptly, you should try to keep the debt on it low. You must not max out your card at every opportunity.
- Reduce the number of loans and credit cards your apply for – You need to avoid applying for multiple credit cards and loans as this can have a negative impact on your score. It suggests financial indiscipline or recklessness.
- Go through your report for errors – Carefully check to ensure that there are no errors that might have negatively impacted your score. This can include late reporting of bills and loans paid among other things. One you notice any error, contest it and have it corrected.
Your credit score is one thing you must stay on top of at all times. If your score is low and you don’t have the time to repair your credit, you can choose to work with a cosigner or offer some kind of security to collateralize your loan so you can enjoy low rates.
Determine the Loan Amount
You need to determine exactly how much you need to borrow. This is important for two reasons – first, you avoid borrowing more than you need and thereby increasing your debt. Secondly, you can determine how repayments and compare it with your current earnings and obligations.
Ideally, your total debt repayment should not take up more than 30% of your income. Many financial institutions will not approve a loan request in which the total repayments (including any other existing debt obligations) exceed about 30%. By determining exactly how much you need, you can figure out a repayment plan that will be most convenient, thereby ensuring that you are able to meet said repayments.
Get the Required Documentation
Find out what documents you may need to prepare and be sure you have them. In general, there are basic documents you will usually be required to present. These include:
- Proof of Identity – This will include any government issued ID
- Proof of employment or income – Examples include pay stubs, employment letter, statement of account etc.
- Proof of address – Acceptable documents include utility bill receipts, bank statements with residence clearly printed, lease agreement etc.
Any documentation that will be required will usually fall under the three categories listed above.
Applying for the Loan
Following the preparation process described above, it’s now time to apply for the loan proper. The following steps can be followed to guide you through the process:
There many lenders from whom you can get a personal loan. This ranges from commercial banks, to credit unions, online lenders and more. At this point, it’s important that you as an applicant take the time to carefully evaluate each lender.
There are a number of important things you should look out for. These include:
- Reputation of the lender
- Maximum amount offered
- Interest rate charged
- Minimum and maximum term offered
- General loan terms and conditions
You must carefully look at these items before choosing a lender to work with.
Compare Offers from Lenders
Having researched various lenders and shortlisted a few, you should compare what each one offers. Look at their offers through the lens of the factors listed in the section above. Only after carefully comparing multiple offers will you be confident to proceed with one, with the full assurance that you are going with the best offer.
By carefully going through the processes described above, you will put yourself in the best position to get personal loans with low interest rates. It however doesn’t end there. After receiving your loan, you must manage it properly, use it for the purpose for which you got it and then make your repayments diligently. This will improve your credit score, and make it easier for you to access such a loan whenever you need it in the future.