How to get the lowest rates when applying for a new loan
July 13, 2010 by admin
When borrowing money, one of the first things in your mind probably is: Will I be able to afford the repayments? This question is coupled with: “What is the interest rate going to be?†Finding the lowest rates is not always the easiest thing for consumers to accomplish as they are often met with high pressure sales pitches and uncertainty whether or not alternative financing will be available.
Before you take that loan, there are a few things that you need to know and understand.
When you decide that you need a loan, shop around. Different financial institutions may offer you different interest rates, depending on who their target clientele is and what services they market themselves as excelling in. Also find out if the interest rate is nominal (i.e. not compounded and therefore a simple rate) or a compound rate which is more difficult to calculate.
There are also a few other things you could do to help you negotiate a better interest rate on your loan/mortgage/credit card etc:
• Good credit record: It is important to lenders that you have a good record when it comes to debt repayment. If you are a good payer and there has been no problem in keeping up with your payments, a lender may consider you a ‘good risk’ and offer you a lower interest rate.
• Debt: Having debt is a good thing – as long as it is managed appropriately. Having existing ‘good’ debt assures the lender that you are used to managing your money responsibly and that you are therefore also a ‘good risk’
• Income: How much you earn and how frequently you earn money are very important factors that lenders take into consideration. If you don’t earn a salary or a regular wage, the chances are that you may be considered a higher risk than a person who does have a wage / salary. The frequency of your income also makes a difference. If you are paid regularly you have a better chance at getting a favorable interest rate. If you receive lump sum payments at irregular intervals, lenders may not look on your risk profile favorably.
• Income vs. Debt: It is important that your income is big enough to comfortably service your debt. If you have to stretch your income to make the repayments on your current debt, you may not be considered a good risk and may then be the recipient of a larger interest rate.
Making debt is serious so make sure that you are prepared for it.