A signature loan can be a helpful resource when you need extra money, but you will have to pay back both the loan and the interest. Want to get the lowest interest rate possible on your next signature loan? Keep these tips in mind.
1. Improve Your Credit Score
The better your credit score is, the lower your interest rate should be. To boost your score, pay off as much outstanding debt as possible and fix any errors on your report. Although repairing your credit can take time, the lower interest rate will be worth the effort in the long run.
2. Do Some Comparison Shopping
Not all banks offer the same products. To ensure you're getting the lowest rate, you may want to apply for a loan with multiple financial institutions. When comparing loans, don't just look at the interest rate. Also, make sure that you take into account processing fees and any other costs associated with the loan.
3. Opt for a Shorter Term
The term refers to the amount of time you have to pay back the loan. For instance, a five-year term means that you have five years to repay the loan. In most cases, lenders lower the interest rate if you agree to pay back the loan sooner.
When applying for a loan, ask the loan officer to run a few different scenarios so that you can see how a lower term affects your interest rate. For instance, if you agree to repay the loan in three years, you may get a better rate than if you take seven years. Note, however, that a shorter term will increase your monthly payment.
4. Work With a Co-Signer
When a loan is based on your signature, its rates are based very closely on your personal credentials. If you have a relatively low or mid-grade credit score, income, or debt-to-income ratio, you may struggle to obtain a loan with a low-interest rate.
See if you can find someone who is willing to cosign for you. Then, the bank will look at that person's credit score, income, and so on. If the co-signer is a less risky borrower than you, the lender will likely offer you a lower interest rate.
If you take this path, keep in mind that the cosigner becomes responsible for the loan if you default.
5. Consider Putting Collateral on the Loan
A signature loan is an unsecured loan. This means that you agree to repay the loan with your signature. In contrast, secured loans have collateral such as cars or homes.
You may want to offer to put some collateral on the loan to lower the interest rate. For instance, if you own a car or real estate, the bank may accept that collateral in exchange for a lower interest rate.