When you plan to use money that is not yours, you will be paying interest. But no one wants to pay high interest rates.
This article will give you advanced information on how to find the cheapest personal loan interest rates.
The truth is:
Americans overpay millions of dollars on their loan interest and credit card fees.
For those with bad credit, the difference could be huge.
So, how can we get the cheapest interest rates?
The loan market is huge. This is definitely an advantage because people have many choices. But it could also be a disadvantage because the offers are too many and people often skip many of them. That is one of the reasons why they pay higher interest.
This is one of the best tips that every financial expert should start with. There is no better way to see what is best for you than by asking. Apply with as many personal loan companies as you can and wait for offers. You lose nothing.
Many people are worried about applying with many companies at the same time because they think that their credit score will be lowered. Let’s finally clarify this because there are still many myths out there. When you apply for a loan or a credit card, lenders have to see your credit report. There are two types of credit pulls: soft and hard.
Soft credit pulls don’t affect your credit score anyway!
Hard credit pulls affect your credit score. Every hard credit pull cost you some points of your credit score for a few months from the check date.
So, what types of credit pull lenders perform?
Almost all legitimate lenders work that way:
When you apply for a loan, they perform a soft credit pull, which doesn’t affect your credit score at all. Once you agree on their terms and request the loan, a hard pull will be performed. This happens later in the application process. This would mean that your credit score will lose some points after you get the loan, but if you continue paying your loan on time regularly, you will continue building your credit score.
Is there any exception to that?
In some rare cases, there are some exceptions. Some of the largest companies are not direct lenders. They are marketplaces that connect lenders and borrowers. Once you apply with such a marketplace, your personal information will be sent to many lenders. Most of them will perform a soft credit pull, but there are chances that some of them will perform a hard credit pull.
Almost all credit card issuers and credit unions perform hard credit pull.
We will explain later about them.
Be careful with that.
How to know about that?
Most lenders that perform only soft credit pull should list that on their sites. They love to post this notification close to their application form. Here is how they look like:
If you see something like that, you are good to go.
When you only visit sites and put your details, which means completing the application forms, a hard inquiry shouldn’t be performed. Don’t worry about that. A hard inquiry should be performed after you have been approved and agree to get the loan.
Pros of shopping around:
You compare many offers so that you can pick the cheapest one.
Your credit score wouldn’t be affected because most of the legit lenders perform soft pull.
You get a better idea of the lending market.
Cons of shopping around:
Require some time.
Some companies perform a hard inquiry, which lowers your credit score.
Almost no other significant cons, because shopping around is something good.
Be Careful When You Plan to Get Many Loans Too Often
When you pay off your loan earlier, the company gives you a serious discount. You always pay your principal amount in full, but according to the interest fees for the remaining period, chances are:
Lenders cut them totally, so you pay no interest fees.
You still pay some fees, but they are at a significant discount.
At first sight, this looks good for some people who have the ability to repay their loans faster. But things have their bad side! Read on…
What about this scenario:
You get a loan; you pay it back; then you again get a loan, and so on. Would this make your loans cheaper or actually more expensive?
To explain that, we will give you an example.
You get a loan of $1,000 for a year. After 3 months, you find some money, and you decide to pay it back in full. This would mean that all interest rates for the remaining period of time should be discounted. You pay less than the total amount, counted at the start of the contract.
Say that your interest per month is $10.
So, you will pay: 3 * $10 = $30 fees (This is for the time you keep the loan)
For the remaining period, you would save: 9 * $10 = $90 (You shouldn’t pay this because you repay the loan in full)
In 3 months, you go and get another loan with the same parameters. Again $1,000, $10 interest rates per month.
The situation looks that way. For these 3 months interval that you didn’t keep any loan, you would actually save:
$3 * $10 = $30
This looks correct.
Where is the catch?
Most loans come with origination fees and a bunch of many other hidden fees. Here is how you actually lose money.
You save $30, but let’s say that each of these loans comes with $40 additional fees (origination, etc.). This would mean that you actually would lose:
$40 – $30 = $10 (You lose these in fees)
So in this scenario, your loan game actually makes you pay more.
What would happen if you give back the loan and apply for a loan after a year?
Let’s count again.
For the period of time that you don’t keep any loans, you shouldn’t pay anything. So, in our example, you’d save:
12 * $10 = $120
After a year, you apply, and you pay extra fees attached to the loan of $40.
This time you’d save:
$120 – $40 = $80
Here we win!
What are these fees, and how can I count my loan correctly?
This definitely is your origination fee. Most loans have origination fees that wouldn’t be discounted if you pay the loan early. But there are many other fees. Some of them are considered even hidden.
Ask every lender to disclose them carefully.
There is no exact formula for getting the cheapest loan if you plan to play games like this. But to give you an overall idea, things look that way:
You have to count:
How much would you save for a certain period of time that you don’t keep a loan?
All non-refundable fees, attached to your loan for the same period of time.
Then you have to compare these values.
In this case, we gave an example with only one loan and only a $10 per month interest rate. But some people work with many loans and higher amounts. For them, the losses could be huge.
A loan of $30,000, with an origination fee of 1%, would mean a $300 loss per loan. Count also other fees, hidden or no, and these $300 could become $500. This is what you will lose only in extra fees per loan.
Paying back every loan earlier save you money.
Within the period of time that you don’t keep any loans, you may increase your credit score so that the next loan would be with better parameters.
You build trust in lenders—every paid loan in full means a higher lender trust.
Some people love these games. Get a loan now, pay it in time, then another, and so on. For some people, this is passion.
You can lose more in extra fees.
Your credit score could get down for some reason, so next time you get a loan with worse parameters.
You risk being disapproved. Even if your credit score is high, even if you have higher lender trust, still the lender is the person who has the final word. No loan could be guaranteed.
Plan your loan better. It’s impossible to plan your loan exactly because there is always some unpredictable situation in our life. So, our advice would be: get more than you actually think you want. If you plan to get $1,000, apply at $1,100. The differences in fees wouldn’t be huge. But if one day you see that these $1,000 are not enough, you will be put in a situation where you will pay much more for refinances, new loans, and things like that; or you will have to cut from your important spending.
Be Careful with Refinances
Whether you have one or many loans, a refinance could help you find a cheaper loan. But only if you use it the right way!
There are many cases where you actually lose money when refinancing.
That is because you don’t count many fees, which are not too small in most cases. In fact, there could be significant fees you should pay if you want to refinance.
To understand whether your refinance will save you money on interest rates or actually make you lose money, you have to carefully put all of the numbers on the table and compare them. There is no exact formula because there are many different scenarios.
To give you an overview, here is what you have to count.
For your existing loans and credit cards.
Count how much you pay in fees per month.
Count how much are your total amount for the full repayment period.
Count how much you should pay to close the loans if you refinance today.
Count how much you would save because you pay off the loan if you refinance today.
For your new consolidation loan.
Count your monthly interest rates.
Count your total amount.
Count all extra fees attached to the loan: origination fees, hidden and nonhidden extra fees.
Count all extra fees that you will pay for the actual refinance. In most cases, these are hidden fees.
To be sure that the new loan will work for you, you should put all of these numbers on the table, do the count and make sure that:
You will pay less for your new loan.
The new loan terms work better for you.
When should you refinance?
You should refinance if you get better terms.
You should refinance if you increase your credit score. You are with bad credit now, but in time you increase it. Update your lender for that. Ask them for something cheaper for you. Apply with other lenders.
How to Find Cheap Personal Loan Rates for Bad Credit?
Understand the bad credit loan market…
For people with bad credit, things look different. The reason is that they are different targets.
There are 3 main types of loans available for people with bad credit:
Personal loans for bad credit. These are loans of $1,000 to $100,000. Their APR is capped at 35.99%. These days there are personal loan companies that lend to people with bad credit.
Payday Loans. These are loans of $100 to $1,000. They are very expensive. Their APR average at 400%, but it could be more.
Alternative payday loans. These are loans that are between personal loans and personal loans.
First of all, people with bad credit are a great target for payday lenders. All payday loans are predatory. We highly recommend that people stay away from them because they are costly, and people often become in a debt cycle.
We have said this many times on our site:
People with bad credit have many other options than payday loans.
But unfortunately, still many people don’t listen to our advice. We still receive a lot of complaints from people with payday loans.
People have to understand that it’s absolutely possible to get a personal loan with bad credit. Your APR will be higher but times less than this 400% payday APR.
In the end case, people with bad credit who can’t qualify for a personal loan can try alternative payday loans. These loans are more expensive than personal loans but less expensive than payday loans.
ElitePersonalFinance has created detailed guides on these types of loans. We highly recommend that you spend some time understanding bad credit loans because this will save you a lot of money. Here are our recommendations:
Alternative payday loans. This guide will explain how alternative payday loans work—beneficial information for people with really bad credit.
What is the most important advice that we give to people with bad credit?
Work on your credit score and wait till you can be approved for a cheap personal loan.
Even if you are bad credit, you won’t pay these 400% criminal interest rates, but you will always pay more than people with a good credit score.
If you can’t wait, get an expensive loan. But from the day you get it, focus on repaying it as fast as possible.
Loan Comparison Sites
Loan comparison sites are one of the best ways to find the cheapest loan interest rates. These sites partner with many online lenders, banks, credit unions. Once you complete their registration forms, they will match you with all lenders in their system. You will be able to compare offers from multiple lenders instantly.
They are totally free. Where is the catch?
There is no catch. You probably would ask how these sites make money in case they are totally free?
Actually, they partner with all of these lenders. Once you get a loan via them, they will get a small percentage from the lender. But you lose nothing.
The best loan comparison sites are SuperMoney and Credible.
We highly recommend that you try them.
You save a lot of time.
These sites work with almost all big online lenders, banks, credit unions, so you get the best offers.
You will be matched based on your details instantly.
100% free for you.
Soft credit inquiry, which doesn’t lower your credit score.
These companies don’t have a lot of offers for people with bad credit. Although they work with all credit profiles, people with a credit score of over 620 receive many more offers.
Calls from different lenders are possible.
You share your personal details with many different companies.
Credit Unions and Banks Have One of The Cheapest Interest Rates, Let’s Try Them
If you want to get a very low ARR, you have to try banks and credit unions.
Banks approve only people with a good credit score. And even if you are with a good credit score, the bank may request to secure your loan or find a cosigner. If you meet all bank qualification criteria, you should expect a high amount of up to $100,000 and very low interest rates. However, many people don’t meet these criteria. Their chances are to wait until they increase their credit score or to apply with credit unions.
Credit unions have lower credit requirements. Most of these institutions evaluate your real ability to repay the loan on time – your income and debt to income ratio. Credit unions pay less attention to your credit score. Even people with bad credit who prove good income can be approved. Credit unions’ APRs are capped at 18%.
For people with really bad credit, there are payday alternatives. These are a small amount of cash, typically less than $1,000. Their APR is capped at 28%. That’s not too cheap, but things look better if we compare this to these 400% payday loan APR.
Both banks and credit unions offer the cheapest interest rates.
Credit unions approve people with bad credit who can prove good income.
Credit unions offer payday loan alternatives for people with really bad credit.
Both banks and credit unions offer great terms.
Both banks and credit unions offer a high amount of up to $100,000.
Banks require a perfect credit score.
Banks could request to secure your loan or add a consigner, even if you have a perfect credit score.
Credit unions require you to become their member.
Both banks and credit unions could perform a hard inquiry on your credit file, so be careful. Ask them when they plan to perform a hard pull.
Secured and Cosigner Loans
When you add a consigner or secure your loan, you actually add extra trust in your lender.
While for people with good credit, this could mean getting lower APR, this could mean their last option to qualify for a loan at all for people with bad credit.
Both of these types of loans are good, but you put something at risk.
Secured loans are those that you add some collateral, such as your car. If you can’t repay the loan, the lender can get your collateral instantly.
For people with good credit: Higher amount, less APR, better terms, more lender trust.
For people with bad credit: Possibility to get a personal loan at all, low APR than traditional payday loans, possibility to avoid payday loans, higher amount.
You build your credit score if you pay the loan regularly.
You risk your collateral.
You put at risk the partnership with this person.
You can destroy your credit score if you don’t pay the loan regularly.
Work on Your Credit Report
A higher credit score means that you will always be paying lower interest rates. But how to increase your credit score?
You probably expect to read: pay your bills on time, manage your credit cards properly, pay at least the minimum, etc.
All of these are true, but the effect after you start applying them will come in a long period of time. There is no way to boost your credit score fast.
That’s why we wanted to give a few unique tips that many people often skip.
Review your credit score for errors and if you find them, report them to all credit bureaus instantly.
Many of you know that but how many of you have actually completed this task. According to Experian’s study, almost 30% of credit reports contain errors. This means that at least 30% of the people haven’t performed this task.
This is only one fast way to increase your credit score fast, and it is 100% legit. People who find errors and report them could expect a fast raise, like up to a month.
Tip: Get credit monitoring. That way, you can monitor your credit report changes often.
Boost your credit score with your existing loan and apply for refinancing
When you get a loan, a hard pull will be performed on your credit file. This means that your credit score will lose some points for a few months. Nothing serious …
But after these few months, the negative effect from this hard pull will be less.
If you continue paying your loan on time, you build credit.
Do you know that all regularly paid loan leads to credit boost?
This affects mainly people with bad credit.
People with bad credit typically pay high interest.
Now, it is time to try to improve your credit. Use your loan as a credit-building tool. Combine with other ways to increase your credit, like paying bills on time, etc. And in a few months, your credit score will increase.
Now, not only that your credit score is high, but also you have high lender trust because you have proven that you pay your loan on time.
Now, it’s time to go to your lender and ask if you will qualify for better interest rates and if it will be possible to refinance with a cheaper loan?
Go also to other lenders, banks, credit unions, and ask for refinancing.
Decrease Your Credit Risk
Credit risk is … your credit report. Yes, and no.
Actually, your credit report is one of the main factors lenders use to determine your risk factor.
This is considered a significantly negative factor. It increases your credit risk.
If you have 10 credit cards, your risk factor will be high, even if some are of them with low limits.
10 credit cards with a limit of $100 are NOT equal to 1 credit card with a limit of $1,000.
10 loans of $100 are NOT equal to 1 loan of $1,000.
Although the principal amount is the same, your risk factor will be totally different.
With 10 items, not only you can’t expect the cheapest loan rates, but you shouldn’t expect approval at all, even if you pay them on time.
If you already have many items, close them, or try to consolidate them in one.
Get The Minimum Loan Amount Possible
A great way to decrease your costs is to take out the minimum loan amount possible. A sound approach is to calculate exactly how much you’ll need and stick to it. If you follow this advice, you’ll keep your interest charges at a minimum – even with a high APR.
See, when you take out a loan – even with an APR as high as 100% – lowering the principal will help keep interest charges from getting out of hand.
To start, let’s compare four 1-year loans repaid over 12-months. Two have APRs of 100% and principal balances of $100 and $1,000. The other two have payday loan APRs of 400%, but with the same principal balances of $100 and $1,000.
Check out the table below:
Total Interest Paid:
Notice, even with a higher APR, you save a lot in total interest by keeping the principal balance low. By reducing the 100% APR loan from a $1,000 principal to $100, you save $557.92 in total interest – and that’s just over one year. The 400% APR example is even more substantial. By reducing your principal balance from $1,000 to $100, you save a whopping $2,817.34 in total interest paid.
So plan your budget better, and you will always save.
Lower Your Repayment Duration
Another way to obtain a cheap personal loan is to lower your repayment duration. If you’re able to increase your monthly payments, you will save a lot in interest over the life of your loan.
To illustrate, we’ll use the same four loans as above. However, this time, check out how much you save in interest by lowering your repayment duration.
Total Interest Paid: 1-Month Loan:
Total Interest Paid: 3-Month Loan:
Total Interest Paid: 6-Month Loan:
Total Interest Paid: 12-Month Loan:
When comparing the 100% APR, $100 loan repaid over a month versus the 1-year loan, you save $53.66 in total interest paid. Even more, when comparing the 400% APR, $100 loan repaid over a month versus the 1-year loan, you save $279.98 in total interest paid.
The result is even more staggering when we increase the loan amount.
When comparing the 100% APR, $1,000 loan repaid over a month versus the 1-year loan, you save $536.58 in total interest paid. And when comparing the 400% APR, $1,000 loan repaid over a month versus the 1-year loan, you save $2,797.32 in total interest paid.
As you can see, reducing your repayment duration has a significant impact on your total borrowing cost.
Your total amount is less.
You pay the loan faster.
Your monthly increase.
If you can’t pay your high monthly, you have to get other loans, which will make you pay more.
There are not the cheapest personal loan interest rates. Less rate means that you pay something else. But we will always have to be close to our cheapest personal loan interest rate.