Personal Loans: 3 top tips for getting a low interest rate
Posted July 2017 by Melissa Abraham-Smith
Whether it's to finance a new car or those long-overdue home improvements, there's a long list of things you could fund with the money from a personal loan. In fact, a loan could be just the thing you need to free yourself up for those elusive next steps in your life, from paying off persistent credit card debts, to financing your dream wedding.
No matter what sits atop your wish list, if finance is on the cards then you're in luck: taking out a loan is easy as. With technology at your fingertips, you can simply apply for a personal loan online and let the approval process play out, without ever changing out of your PJ's.
Finding a loan that offers you the ultimate combination of terms, conditions, rates and fees, however, is a little more difficult. We think you’ll agree that you deserve the best loan you can get, so how do you get a personal loan that’s great and boasts the lowest rate?
For one, you could check out today's post where we're sharing 3 top tips that'll help you get a great rate, and save you thousands in interest on your next loan at the same time.
Sound good? We think so! Up first, we’re talking Credit Scores…
1. Improve your credit score
We can’t stress enough just how big a role your credit score plays in the loan application process, and your ability to achieve a great rate. It’s so important that we’ve written at length about it in the past in our post 'What is a credit score, and how will it affect my personal loan application?'.
Long story short, financial institutions see your credit score as a measure of your creditworthiness and use it to determine how reliable you are, and how likely you are to repay any money that they lend you.
The lower your credit score, the higher the risk to the lender. The higher the risk, the more they'll compensate by charging you a higher rate.
If you're unsure of your credit score, then now is the time to find out. By using a site like Credit Simple, you can quickly and easily check your credit score online in a matter of minutes, completely free of charge.
Is your score low? High? Or somewhere in-between? With this information in hand, you can improve your credit score before you start the application process, and ensure you're getting the best rate you can.
For example, let's say that your credit score is low. Rather than settling for a high rate from a shady provider offering ‘Cheap loans for bad credit!’, you can use this information to improve your credit score, increase your creditworthiness, and land a better rate. It might take a little work, but it could save you thousands.
If that all sounds too difficult, it’s not! Improving your credit score is easy if you follow a few simple tips:
- Pay your bills on time and remain consistent.
- Consolidate all of your outstanding debts with a debt consolidation loan.
- Kick your credit card debt to the curb.
2. Shop around
When it comes to lenders, New Zealanders are spoiled for choice. But just because you're eligible for a loan, doesn't mean you should rush in and apply for the first one you find.
Just like a savings account, term deposit, or credit card, choosing a lender requires some research and planning if you want to land the best rate, so skip the easy option and start shopping around. Don't just compare rates, either. Examine the fine print, and take a closer look at the repayment schedule, fees, charges, and other terms that could leave you facing a nasty surprise later down the line.
You don't have to do this manually, either. Sites like finance.co.nz make this process easy, allowing you to quickly and easily compare providers and the loans that they offer across the length and breadth of New Zealand.
As for the question of bank or credit union? It can be a tough choice. While big banks generally offer greater coverage, credit unions are owned by their members, and are able to offer fairer rates, with better terms, and are usually more likely to lend to Kiwis who are self-employed or have bad credit.
Before making a decision, check with your current financial institution and see if they offer lower rates for existing customers or members. At NZCU Baywide, for example, the Loyalty Saver account offers cheaper rates on personal loans for loyal members, which could see you saving thousands.
3. Apply for secured finance
The quickest, simplest way to get the best rate is with a secured loan. Comparing secured and unsecured loans, the latter sees you paying a higher rate with fewer strings attached, while a secured loan uses an owned asset (like a car) as security against the amount you're borrowing.
In doing so, the financial institution can rest easy knowing that they can retrieve their money if you're unable to make payments, and in exchange you receive a loan that's generally easier to get, and offers you some of the lowest rates around.
Not all personal loans are created equal…
Which is why you need to put in a little extra work to find the best loan for you! By improving your credit score, shopping around between providers, and applying for secured finance, you'll ensure you get the best rate and save yourself thousands over the life of the loan.