Qualifying for a low-interest rate loan is an ambition many have but a dream few realize. Unfortunately, securing a loan at optimal rates can be an incredibly difficult feat to conquer. Although every lending institution establishes its own criteria and guidelines for issuing loans, most reserve stringent income, credit, and savings standards when it comes to evaluating a loan applicant and awarding the lowest interest rate possible.

Naturally, some lenders are considerably more flexible than others and therefore willing to work with borrowers who have diverse and even less-than-favorable financial histories. Luckily, with enough time and careful planning, adequate steps can be taken before any big-time borrowing to drastically improve your chances of securing a low interest rate loan.

1. Know Your Credit

Do you have excellent credit, good credit, average credit, or bad credit? You should know before your lender does. If your credit is less than spotless – and if your need for a loan isn’t time sensitive – you can apply for a loan after taking necessary steps to repair your credit or possibly obtain a co-signer.

2. Correct Errors on Your Financial Record

Many people find that their credit histories contain errors that needlessly reflect poorly on their financial standing. Before requesting a loan, take the time to investigate your financial and credit records and correct any errors that could stand between you and the low interest rate you may deserve.

3. Research Reputable Lenders

Securing a low interest rate on a loan is important. But working with a reputable lender that can be trusted and honor commitments is far more important. Before doing business with any institution that offers a low rate, check to ensure that such claims are as legitimate as the lender.

4. Get Current and Stay Current

The more responsible your repayment history appears, the more favorably a potential lender will look upon you. If you have any outstanding late fees or unpaid penalties on a previous debt, settle up before you subject your financial history to the scrutiny it will come under during application screening.

5. Competitively Shop

One of the most effective mechanisms for getting a great rate on a loan is to competitively shop. Making banks and other financial firms negotiate for your business can be a great equalizer when other factors (your debt, credit, income, etc.) might be working against you.

6. Beware of Refinancing Penalties

The seemingly foolproof plan of taking out a loan at a high rate today in hopes of refinancing in the near future can ultimately prove to backfire. Many lenders attach substantial early exit fees if you seek to refinance within the first few years of the loan. The combination of a higher rate today with the penalties of tomorrow would effectively mute the benefits of refinancing your way to a lower interest rate.

7. Pay Down Debt Before Borrowing More

Reducing your overall debt before undertaking any additional borrowing is certain to help you get the lower interest rate you’re wanting. If possible, paying off another loan before requesting a new one will represent a responsible payment history and bode well for the next interest rate you receive from a lender.

8. Lock in Your Low Rate

If a lender’s standard variable rate is higher than other lenders (meaning you would pay more on the loan over time) consider a potential lender with a lower variable rate or, better yet, lock in a fixed rate until the loan is repaid in full.

9. Don’t Consolidate

You may think that having only one lump sum of debt will look better to a lender than several revolving accounts, but moving debt around in the form of a loan consolidation will look unfavorable on your financial history in the short term. Even if you have multiple credit balances (as long as they are not delinquent) keep them exactly where they are.

10. Borrow Less

This may seem like a no-brainer, but many individuals who seek a loan actually obtain more than they need. Naturally, by borrowing less you will not only reduce your overall debt burden, but you will be more inclined to secure a low interest rate since larger loans are typically those that carry the highest rates.

The Lowdown on Low Rates

Even the smallest decrease in the interest rate attached to a loan can mean the difference between saving or throwing away thousands of dollars over the life of a loan. Although cautious lenders will make you jump through many hoops to get the rate you’re looking for, any efforts taken to obtain the best rate possible will always pay off over the long haul.

Photo by j.c.westbrook

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