Can Interest Rates Affect My Personal Loan Terms?
Whether you’re thinking about getting a personal loan or you have one already, knowing how interest rates can impact your loan terms is critical. Interest rates play a part in the cost of borrowing money, which can affect your monthly payments and the total amount you’ll be repaying in the long run.
Before deep diving into how interest rates work, let’s define several important financial terms you’ll need to know:
Interest Rates
In a nutshell, an interest rate is the percentage a lender charges as an extra cost on the borrowed amount. It is based on the principal of the loan and is impacted by the borrower’s credit history and score. Essentially, interest rates are how borrowers pay for the privilege (and convenience) of accessing funds. Some lenders offer online personal loan calculators to better gauge monthly payments you’ll pay throughout the life of the loan.
Loan Terms
Loan terms refer to the conditions in which the borrower agrees to repay the loan. These terms typically include the interest rate, repayment schedule, and any additional fees or penalties of the loan, such as origination fees. You will be able to review your loan terms before you sign a loan agreement, and you should take the time to do so carefully.
Unsecured vs. Secured Debt
Unsecured debt refers to a loan or credit that requires no collateral, which includes most personal loans and some credit cards. However, this type of debt can be a higher risk to lenders since they have no assets to repossess if the borrower fails to repay the loan.
Secured debt is a loan that is backed by collateral, such as title loans. With a title loan, the funds are secured by the lien-free title to a qualifying car or truck. If the borrower defaults or makes no payments towards the title loan, they risk vehicle repossession.
Credit Score
A credit score is a numerical representation of a person’s creditworthiness, otherwise known as their ability to repay their debts and handle different types of financial products, such as credit cards, loans, and mortgages. The higher your score, the better loan terms you could receive.
Creditworthiness
Creditworthiness refers to a borrower’s ability to repay a loan based on their financial history and current financial situation. Using this assessment, lenders determine whether borrowers will be able to repay their loans on time. The better your credit score is, the higher your creditworthiness. That can improve your chance of locking in a lower interest rate during a credit inquiry.
Now let’s discuss how interest rates can affect your personal loan terms. It’s really pretty simple–the better your credit score, the greater the likelihood of receiving lower interest rates.4 When interest rates are lower, it’s less expensive to borrow money. If you do not have a “good” credit score, it may be tougher to obtain a lower interest rate through an unsecured loan, such as a personal loan.
But don’t get too discouraged or throw in the towel if you happen to have a lower FICO score. Max Cash®has a network of trusted lenders who may be able to help you if you’re under financial strain and a personal loan is for you. Call (833) 207-9052 for more information today, 24/7!
What Are Factors That Personal Loan Lenders Take Into Consideration When Determining My Interest Rate?
Typically, the most important factors that most lenders take into account when determining an applicant’s interest rate are:
- Credit Score
- Payment History
- Current Economic Conditions
Other factors that lenders may consider include the borrower’s income, employment history, debt-to-income ratio, and the loan’s intended purpose.
These factors help lenders assess the credit risk associated with lending to a particular borrower.
A borrower with a lot of debt, less income, and a low credit score is considered to be a high risk borrower. In comparison, an individual with a high credit score and less debt is considered to be a low risk borrower.
You can use the funds from a personal loan on a variety of expenses, from home renovations, medical bills, wedding expenses, or even a well-deserved vacation. So, how do personal loans work? Essentially, a personal loan is a type of unsecured loan that allows you to access a specific amount of money that you’ll typically repay in installments.
The best part is that you can potentially get a personal loan quote online with a lender, making it super fast and easy!
How Can You Get Lower Personal Loan Interest Rates?
Looking to get a lower loan interest rate on a personal loan? The first thing you can do to potentially get a lower interest rate is to maintain a good credit rating. This means that your score is above 670 on the FICO scale. Lenders typically offer lower interest rates to borrowers with higher credit scores.4
Keep in mind that you may not need a good credit score to obtain approval for a secured loan option. However, getting approval for an unsecured loan is tougher if you do not have a strong credit history.
Consistently paying your bills on time can demonstrate your creditworthiness and improve your chances of securing a lower interest rate as well. Additionally, taking the necessary steps to reduce your debt-to-income ratio is important because most lenders prefer to work with borrowers with a lower percentage of debt compared to their income.
Furthermore, it’s important to compare interest rates and terms from different lenders to ensure you’re getting the best deal possible. That’s where Max Cash can step in! We can shop around for you and connect qualified borrowers to personal loan lenders within our network of verified lenders.
If you are not confident with your credit history, you may want to consider inquiring with a co-signer. Having a co-signer with strong credit may help you secure a lower interest rate on your personal loan. Interest rates affect your loan terms and the amount of money you will repay, so it’s important to keep these tips in mind if you are planning on getting a loan in the future!
What are the Disadvantages of High Interest Rates?
Basically, high interest rates mean that it will cost more to borrow money from a lender or financial institution. This can be a huge disadvantage! It’s important to review your loan terms with your lender or loan servicer before you sign your loan agreement. Discuss your interest rate, repayment period, and any other applicable information with your loan agent to ensure that you understand the total amount of money you will be required to pay back.
Should I Get a Personal Loan to Pay Off an Existing Loan?
Applying for a personal loan to pay off an existing loan–aka refinancing or debt consolidation–can work to your advantage in some instances, but it really depends on what your financial situation is. If you want to refinance a personal loan, you could get a better rate and save on making interest payments. Also, if you want to consolidate debt, your current multiple payments can be rolled into one, which may be easier to pay.
What’s important to consider if you want to go this direction is to carefully compare loan terms to make sure this is the best solution if you already have an existing loan. It can seem complicated, but Max Cash® has already taken care of the homework for you–call (833) 207-9052 if refinancing or debt consolidation is the answer for you.
Where Can I Get a Personal Loan Online?
The digital age has made it possible for people to get personal loans online, without having to leave the comfort of their home or drive all the way across town. Inquire about a personal loan online by filling out a simple online inquiry form. Max Cash is here to help you explore your options and potentially connect you to a lender that fits your current situation. Finding a lender on your own can be tough to handle by yourself–but we’ve got your back!2 5
Hard financial times can get you down, but with Max Cash, you’re not just a number–call us at 833-207-9025 now to learn more about getting a personal loan!5
