Personal loan

How to get a lower interest rate as personal loan balances rise 31%

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According to the Q2 2022 TransUnion Credit Industry Insights report, total personal loan balances increased 31% from last year, reaching a record total of $192 billion.

This number may not seem so surprising, however, when you consider that we have experienced significant inflation, which has led to higher prices for food, gasoline, furniture and just about everything else. . Not to mention, personal loans have recently become a more popular financing tool due to their versatility, as they can be used to cover a number of expenses, whether it’s a wedding or vacation, renovations home or car repairs.

Personal loan amounts can range from as little as $600 to $100,000 – it really depends on the lender – and like any form of debt, this financing comes at a cost. Not only will you have to repay the amount you borrow in smaller, equal monthly installments, but you will also have to pay interest.

Personal loan rates tend to be lower than credit card rates – according to the most recent data from the Federal Reserve, current annual percentage rates for personal loans, or APRs, average 8 .73%, while current credit card APRs average 16.65%. .

If you do find yourself with a large expense, first check to see if you have enough savings to cover the cost – if it’s something unexpected, that’s when your savings fund is spent. emergency will come in handy.

If taking out a personal loan really is the best way to pay it off, there are steps you can take to ensure you get the lowest possible interest rate from your lender, which can potentially save you hundreds or even thousands of dollars. while you pay off the balance.

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Improve your credit score before applying for a loan

The best way to get a lower interest rate on your personal loan (or any other line of credit) is to improve your credit score before you apply. With a higher credit score, you will be more likely to receive a lower interest rate because the lender will view you as a less risky borrower, i.e. someone who is more likely to repay the loan. loan balance in full without missing any payments.

It’s in your best interest to work on improving your credit score before submitting your application, especially if you don’t need the money right away. Paying your bills on time is the most important thing you can do to increase them since your payment history actually accounts for 35% of your credit score. You should also try to keep your debt balance low and check your credit report regularly so you can challenge any potential inaccuracies that could lower your score.

Credit monitoring services such as Experian can also help you keep an eye on your credit profile. Its free Experian Boost™ feature lets you connect your bank account and boost your credit score whenever it finds recurring payments for certain utilities, telecoms, and streaming services. In other words, paying your cell phone bill or a Netflix subscription every month can boost your credit score.

Experian Boost™

On Experian’s secure site

  • Cost

  • Average increase in credit score

    13 points, although results vary

  • Affected credit report

  • Credit score model used

Even though Experian Boost™ only takes a few minutes to analyze your bank accounts and boost your credit score, developing healthy credit habits really is the most sustainable way to maintain it.

In addition to paying all of your bills on time each month, also make sure that your credit utilization — the amount of credit you use relative to the total amount of credit available — is low. For example, if your total credit amount is $10,000 and you only used $5,000, your use is 50%. It is generally recommended to keep your credit utilization below 30%.

It’s also important not to ask for too many new lines of credit at once. Each time you open a new line of credit, a lender thoroughly investigates your credit report, which may temporarily lower your score. Consider which lines of credit you open and when you apply for them.

Sign up for autopay so you never fall behind

Some personal lenders offer discounts for using Autopay, a feature that automatically deducts payments from your linked bank account, ensuring you never fall behind since you won’t have to remember to pay manually your bill each month.

Goldman Sachs’ SoFi, LightStream, and Marcus are just a few lenders that offer a 0.25% APR rebate for using the autopay feature. While 0.25% may not seem like a lot at first, a little can go a long way and the money you’ll save over months and years of interest payments will definitely add up.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    7.99% to 23.43% when you sign up for autopay

  • Purpose of the loan

    Debt consolidation/refinance, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.99% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Marcus by Goldman Sachs Personal Loans

  • Annual Percentage Rate (APR)

    6.99% to 24.99% APR when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, home improvement, wedding, moving and moving or vacation

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Hooking up an autopay discount can help you save a little money, especially if you need funding on the fly and don’t have months to work on improving your score. credit. Applying for a personal loan with a good credit score should also put you in a solid position to qualify for a lower interest rate.

Find the personal loan that’s right for you

Check out Select’s personal loan market tool to help you find a loan that best suits your financial situation. It lets you compare a variety of lenders to make sure you get the best deal.

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.