What is the APR?
Annual percentage rate, or APR, is the term used for the interest rate calculated for an entire year, rather than a monthly charge on a personal loan, credit card, vehicle loan etc. The finance provider averages this amount over the full term of the loan, so that you know at the outset just how much you will have to pay back on your loan each month.
People need personal loans for a variety of reasons, like financing home improvement plans, buying a new car, unforeseen medical bills, and anything else the household cannot pay out of the general budget.
Getting the best APR rate can cut a chunk of interest from the loan repayments, and is a huge money saver for borrowers.
There is a lot of competition by loan companies which are vying for business, and this puts prospective clients in a favourable position to negotiate for good deals. If you are able to secure a great deal, it can save you thousands of dollars in the long run.
Here are some of the top ways to get a lower APR loan.
- Knowing your credit score is of major importance. You can search online for any of the three main credit reporting bureaus, which are TransUnion, Experian, and Equifax. These websites can provide you with your credit score as well a report, which is what lenders see when you are being considered for a loan. Credit scores can range from 300 to 850, and the higher the score, the better your credit-worthiness, and the better your chances of getting a loan with a lower APR.
- A low credit score, unless phenomenally low, should not prevent you from getting a loan. However, you may not get a very good APR on your loan, unless you take steps to improve your credit score.
- Securing your loan with assets such equity in your home, or a motor vehicle, and perhaps a life insurance policy which you are willing to cede, will definitely get you a lower APR that can save you mega bucks over the loan period. There is, however, a negative side to secured loans. If you default and do not pay off the loan, you take the risk of forfeiting any assets you signed over as security.
- Shop around and weigh up your options. A loan from big lenders like banks are not the only choices you have. Loans from Credit Unions, who are owned by their members are also available. They are often able to offer loans at better rates to those who do not have the best of credit scores.
- When you are done shopping around and have investigated all the possibilities, only sign up for a loan if you are sure you are getting the lowest rate possible.
Decide whether or not you need to fix your credit score.
If your credit score is on the low side and you want to improve it, this can help you get a better rate should you want to take out a personal loan. However, before you decide on fixing your score, think about how quickly you want the loan. A credit score cannot be fixed overnight, and it may take several months before you see an improvement.
You may still qualify for a loan even if your credit score is a bit low, and if you are anxious for the cash, your best bet is to go for the lowest rate you can get, although it might higher than you wanted to pay.
Some ways to improve your credit score:
- Implement better spending habits by resisting the temptation to buy what you don’t need, and cut down where you can on everyday expenses, and entertainment costs.
- Pay your bills on time, make a concerted effort not to max out credit cards, and create a budget to pay more than the minimum required on the cards. Bear in mind that outstanding debt and unpaid accounts are the main reasons for a low credit score.
- You can also negotiate with creditors for more favourable payment terms, which will help with your monthly cash outflow.
- As soon as you begin paying your debts on time with the proper, or agreed amounts, your credit score will rise as you start building new credit.
- Check your credit report on a regular basis for irregular items that may be affecting your score. If you find anything, you are able to query online through the reporting agencies – TransUnion, Equifax, or Experian.
Always research lenders that you want to do business with. Opt only for those who are reputable and legitimate, with good reviews. Shop around for the best rates, and if necessary, work hard on improving your credit score which can save you interest charges on future loans.
Unless you are in dire financial straits, do not go for what is known as a payday loan. The interest rates are absolutely exorbitant, and you could end up in debt spiral that will not be easy to escape from.
A personal loan, with the best APR you can get, is a far better option.