Need to Borrow Money? Here’s How Low-Interest Loans Can Save You Thousands Over Time
The average personal loan interest rate was about 11%, and borrowers with higher credit scores pay less in interest than borrowers with lower credit scores. The most common use of a personal loan is for home improvement or debt consolidation, and both banks and finance companies can provide low-interest loans to qualified borrowers. The average personal loan term is two to seven years.
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Personal loans can be a great way
to get the money you need quickly, but they can also be expensive if interest
rates are high. Borrowers can reduce the cost of a personal loan by searching
for low rates. They can do this by checking reputable financial websites, such
as NerdWallet, which list current rates among top lenders. They can also search
for online lenders that offer prequalification, which allows borrowers to see
what rates they might qualify for without affecting their credit score.
A borrower’s debt-to-income ratio
(DTI) is an important factor in determining loan eligibility and interest
rates. A DTI under 36% is considered favorable by lenders, and a lower DTI can
help you qualify for a higher loan amount and better terms. If your DTI is
high, you can try to improve it by paying down existing debt and making sure
that all sources of income are included in the application.
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Another factor that can affect
your interest rate is a lender’s minimum credit score requirement. Most lenders
will not offer the lowest rates to borrowers with a score below 650. If your
credit score is below 620, you should take steps to improve it before applying
for a personal loan.
The length of a personal loan’s
term can impact its cost, as well. Longer-term loans typically have higher
interest rates than shorter-term ones. The reason is that longer-term loans
expose lenders to more risk, while shorter-term loans are less likely to
default. If you need a personal loan with a short term, you should consider
alternatives such as payday advances or installment loans.
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Whether you need a personal loan for a home improvement project, debt consolidation or other expenses, it is important to find the right one for your needs. Before applying, make a budget to ensure that you can afford to pay back the loan in full and on time. Otherwise, you could end up with late fees and collections calls.
Additionally,
you should also explore other financing options, such as 0% interest credit
cards, which can give you more flexibility. With interest rates at historic
lows, it’s a great time to take out a personal loan. But before you do, make
sure you compare lenders and choose wisely.
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Borrowing smartly will help you
achieve your financial goals and lay a strong foundation for your long-term
financial health. For example, if you’re consolidating debt, low-interest loans
can reduce your monthly payments and accelerate the process of becoming
debt-free.
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