Is a Personal Loan The Key to Paying Your Debts? Here’s The Reason You Should Shop Around First
Mounting debts can be emotionally draining – imagine the pile of bills to pay on top of your already demanding job. That unideal combination is downright stressful, right? So how can you get out of that situation? You may have thought of borrowing money to pay for what you owe, but is this really the right way to go?
You might be itching to get out of that sinkhole right now, but it pays to do your research first because it could save you tons of money.
According to a LendingTree analysis, which looked at personal loans of borrowers with a minimum of 640 credit score, lenders slap different interest rates even if you have a desirable grade.
Bankrate.com also reported that interest on personal loans can go from 5.95 percent to a maximum of whopping 35.89 percent, which is clearly not a joke on your part as a borrower. But applying for a personal loan is out of the question since you need it badly. Don’t worry, you’re not alone with this predicament.
There are many reasons borrowers take out a personal loan. As per the analysis, 34.9 percent will use it for credit card refinancing, 33.8 percent for debt consolidation, and 10 percent for other matters. This is why you should shop for better rates.
As an example, those who have better grades are imposed a 9.92-percent annual percentage rate for their personal loan, however, institutions can give 10 percent of their clients just 5.43 percent APR – see the difference? For those with a credit score of 649 to 679, LendingTree found that the APR is 24.9 percent but lenders are willing to give only 12.34 percent to the 10 percent. What gives?
Personal Loan as an Unsecured Debt
Obviously, the higher your credit score, the lower the interest rate will be given to you. Credit grade refers to the likelihood that you will repay your loans, which is based on your credit history – the higher your score, the better. However, unlike other types of loans, a personal one has higher rates because it is an unsecured debt.
An unsecured loan means you don’t have to provide collateral, unlike car and housing loans. LendingTree’s Michael Funderburk revealed that lenders who have physical stores tend to have higher interest rates since they have other expenses to cover than the online ones.
How to Get a Low-Interest Rate
It doesn’t matter why you are securing a personal loan but you should know that you need to be a responsible borrower. But still, you may still want to check your financial situation before applying for another loan. When you have finally decided to borrow money, make sure that everything on your credit report is correct.
Second, now that you know you can get a lower APR, ask your lender if it can be trimmed down. Michael said that it can be subtracted .25 or .50 percent if you sign up for an automatic repayment scheme. Lastly, be sure that you borrow what you can repay – to gauge this, ponder on your back-end ratio.
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