The law of lending and borrowing is almost as old as money itself, previously: it costs money to borrow money.
The wonder of borrowing, of course, is that the borrower can get instant access to cash at a speed with which they could never have earned it on their own. The downside of borrowing money is that you have to ever pay it back, with interest.
The most common types of loans are those that are issued to buyers of big-ticket items like cars and homes. However, there exist many alternative loan options for people who may have any number of potential uses for the cash. Such uses could pertain to everything from paying bills that have come due, to covering outstanding medical bills, to having the money to make that business trip that you need to close that big deal.
Here is how to get the best interest rates on a personal loan in 7 steps:
1. Know how much you need to borrow:
Start by figuring out exactly how much you will need to borrow to make your personal loan worthwhile. Obviously, borrowing too much will result in your overpaying in interest, while borrowing too little will mean not satisfying your short-term cash needs.
2. Decide if you need a secured or an unsecured loan:
Next, decide what type of personal loan you will need. Your main choices are secured versus unsecured. With secured loans, you will have to put up some sort of collateral, such as an asset you own, your car title, or a future paycheck. For an unsecured loan, you will not need to put up any such collateral, but the loan will likely end up costing you more.
3. "Own" your FICO score:
Before embarking on the loan process, become familiar with your FICO, or credit score. Agencies like TransUnion, Equifax and Experian all keep a detailed credit file on you. First, run your report with each agency, and then really "own" it. This means: become extremely familiar with your report, including the reasons why you may have a less-than-perfect credit score.
4. Prepare your employment history records:
Some personal lenders will require that you present proof of current or past employment in order to extend you a loan. Gather together any employment records you have, including company names, dates and salary amounts. You may not need these, but it is a good idea to have them on-hand.
5. Find out if your bank will extend you a loan:
Before you start searching for lenders, contact your current bank (if you have one) and ask them what personal loan options you might have through them. Most banks require that you borrow against, for example, the equity in your home. But, it's worth a try.
6. Compile a list of 3 premium personal loan lenders:
If your bank can not extend you a personal loan at this time, it is time to go the specialists: personal loan lenders. Have a less-than-perfect credit score? No worries: these lenders specialize in working with people of all credit score types. In order to secure the best rate, you will need to really do your research. Look for lenders' advertised rates (as per their websites, for example) and add to your list those that have the lowest rates.
7. Apply, negotiate, and repeat:
The only way to be 100% sure you are being offered the lowest-able rate on your loan for your situation is by applying to all of the lenders on your list. And once you apply, even when you are given your first offer, do not stop there! Continue applying to every one of the ones on your list. Then, even when you get a reasonable-sounding offer, negotiate with them to get an even better rate. Bonus tip: tell them you already have another offer at better rate and ask them if they can match it; a little hint of competition can go a long way in getting lenders to lower their rates!
Take these 7 steps to finding the best interest rates on a personal loan.