> Low Interest Personal Loans: Here’s How to Qualify
Low Interest Personal Loans: Here’s How to Qualify
Unsecured loans can fund a variety of projects and help you meet emergency expenses, but low interest personal loans may not be readily available if you have credit problems, gaps in your employment or have little or no credit. Here's how to increase your chances of qualifying for a personal loan with favorable terms.
If you're considering a personal loan to pay for anticipated expenses such as home improvements or debt consolidation, you have the advantage of time to prepare your loan application and gather required documentation. On the other hand, if you're facing unplanned expenses such as major car repairs or uncovered medical expenses, it can be best to use a credit card or other means of payment and take time later to research and apply for a personal loan.
Low Interest Personal Loans: Tips to Qualify
Use these tips to improve your chances of qualifying for a low interest personal loan:
Review your credit reports and scores: Good credit typically translate to lower interest rates on loans and credit cards. If you're planning to borrow a personal loan, it's a good idea to order your credit reports and scores. Data contained in credit reports is the basis for credit scoring models. Errors on your credit reports can cause lower credit scores. While credit scores will likely vary slightly between credit reporting agencies, an extremely low score for one report could indicate credit card fraud or incorrect reporting. Correcting errors on your credit reports may lead to higher credit scores depending on the type of error and its cause.
- Pay any missed or late payments: Unemployment, illness or accident, home repairs and divorce can cause missed payments, which quickly lower your credit scores. If you've missed payments on rent, vehicles, or credit cards, your credit reports will reflect slow or missed payments. If you are applying for a personal loan to clean up your finances, be honest with lenders and be prepared to explain why you missed payments. FICO, a credit scoring company, says that 35 percent of your credit scores are based on payment history. Before applying for a personal loan, it's important to bring past due payments to current status.
- Know how much you owe: Lenders may charge higher interest rates if you owe large amounts on all or most of your credit lines. Lenders look at something called a credit utilization ratio, and ideally expect to see no more than about a third of your available credit used. Estimate your credit utilization ratio by adding up all of your maximum credit lines. Next, add up all of your balances. Divide the total balances by the total amount of your credit lines. The result is your debt utilization ratio. For example if you have two credit cards with a total credit line of $10,000 and owe a total of $5,000, your credit utilization ratio would be 50 percent. If you owe more than a third of your maximum credit lines, paying down debt before applying for a personal loan may help lower interest rates offered for personal loans.
- Request and compare multiple quotes for low interest personal loans: You can negotiate lower interest rates with prospective lenders based on what their competitors charge. There are no guarantees as preliminary rate quotes typically vary from actual rates. Changes in your credit profile, prevailing interest rates and lender policies can cause interest rates to rise.
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