When you do not have the funds to purchase a car or to complete a home improvement project, you might need to secure a loan to get the money you need fast. But when you are looking for a lender to approve you for a loan, it is important to choose the right type of loan to keep the interest rates low. Many consumers are willing to pay a lender interest to get the money they need to fund a purchase or a project. But wise consumers make an effort to keep their obligations as low as they possible can when it comes to repayment. Read on and learn what types of loans are available and how you can ensure the lowest interest rate.
Types of Loans and Standards for Securing These Loans
Open-ended loans are loans that can be borrowed against over and over again for different purchases. Often referred to as revolving credit, credit cards and lines of credit are open-ended. You are given a credit limit and the amount of credit that is available will decrease as you make purchases. As you payoff the principal and pay interest, more credit is then available to you. Typically, you need a decent credit score and proof of sufficient income for open-ended loans.
Close-ended loans are borrowed only once. The most common close-ended loans are mortgages, auto loans, and even student loans. They do not always have to be secured, but in most cases they are. As you pay the installment payments for your loan, the balance due will go down but you will not receive any more available credit unless you apply for a new loan. Typically, you need decent credit, income statements, perhaps tax returns, and acceptable collateral for a close-ended loan. You may also be asked to have a cosigner with good credit if you do not have an extensive credit history.
Secured and Unsecured
Secured loans typically come with lower interest rates because the lenders are protected. They can take over possession of the collateral used to secure on the default. With this being said, you may not have collateral to secure the loan and this is when you need an unsecured loan. Unsecured loans are harder to get and they come with higher interest rates. If you have the option it is best to stick with a secured loan when you know you can fulfill your financial obligations.
How Can You Get the Best Interest Rates?
* Shop Around
The key to getting the best interest rate for any type of loan is to shop around. With so many different rate comparison sites to choose from online, you can see the current published rates from all of the most reputable lenders in the industry. If you do not shop around, you never know if you are getting the best rate.
* Order Your Credit Report
Many people have errors reported on their credit report that they do not know about. It is best to order your credit report at least 2 months before you apply for a loan so that you can identity errors and report them to the agency before the lender sees the defaults or late payments.
* Fixed Interest
If you have the option between a fixed interest or a variable interest loan, go for the fixed rate. Variable interest rates go up in the future and you have the opportunity to lock in a low rate for the entire term of the loan when you choose fixed interest.
* Choose a Shorter Term
If you want a car loan and you want to keep interest rates low, go for a 48-month term instead of a 60-month term. Banks will reward you for choosing the shorter term low with a lower interest rate.
* Choose Auto-Debit
Lenders may offer lower interest rates to applicants who will sign up for auto-debit. This ensures you will make your payments on-time and is less risky for the lender.
Consider all of your options, shop rates, and consider these tips to keep your rates low. If at all possible, pay more each installment and you can lower the amount of interest you pay over the life of the loan. Be a wise borrower, use credit responsibly, and choose the best loan.
This article was penned by Roy McClure, a writer with a keen interest in finance, real estate and current events. This specific piece was composed for Craig Lynd, a person with a response to the question, what is credit restoration?