We can all use financial assistance at one time or another and a personal loan is often the simplest and easiest option. Every loan comes with its own conditions and limitations, though, so finding the best one can be a challenge.
We spoke to experienced finance professionals for their take on how ordinary people can master personal loans. Here is their take on how you can improve your chances of getting a loan, secure the best loan terms, and get the lowest interest rates. Read on to find out how you can hack the personal loan system legally.
Beat the loan application system
You can begin to game the system even before you become a part of it. Here are two tips to pave the road to the best personal loan even before you apply.
- Don’t check your credit unnecessarily
You can apply to check your credit score yourself at any time. Meanwhile, every lender, be it a traditional bank or private licensed moneylender, will certainly make a credit check on your behalf when you apply for a loan. Each application affects your credit score negatively because it is a sign that you are credit-hungry.
Expert tip: Do not apply for credit unless you are fairly certain that you will be approved. So, if you intend to apply for a personal loan, don’t just wander from lender to lender-making applications. Instead, speak to them about their eligibility requirements and then apply only at the lender(s) where you are most likely to qualify.
- Get a co-signer
Applying for a personal loan does not mean that you have to restrict your application to just yourself as an individual. Every traditional lender and licensed moneylender allows you to get a co-signer. With two people’s combined credit score and income, you stand to qualify for a larger loan principal as well as lower interest rates.
Expert tip: The entire purpose of getting a co-signer is to boost credit availability so only ask someone who has an excellent credit score. Don’t squander the benefits of larger loan principal and lower interest rates by defaulting on a co-signed loan. Remember, paying off a co-signed loan boosts your credit rating and may qualify you for higher principal and lower interest on your subsequent applications, even without a co-signer.
The personal loan repayment stage
The search for the best loan does not end once you have had your loan approved. In fact, you can save on your loan payments right up to the time the last installment is paid.
Refinance your loan
Refinancing is essentially using a new loan to pay off your first loan. As an example, let’s say you owe $5,000 at 5% interest on your loan but find another lender who will lend you $5,000 at 4% interest. A refinancing (or debt consolidation) loan from the second lender lets you pay off the first loan immediately and save 1% interest on your new loan payments.
Expert tip: Refinancing is a complicated business and it is not simply a matter of finding a lower interest rate. Most loans have a prepayment clause that charges a penalty for early repayment. You will have to factor in all such fees and charges before you decide if refinancing is the economic option.
Another thing to remember is that being in debt actually helps your credit score! When you successfully manage multiple loans across a range of credit lines (personal loan, home loan, car loan, credit card, overdraft account, etc.), you are eligible for bigger loans and lower interest rates.
Staying out of debt
One of the most overlooked components of financial health is expense management. By capping your expenses, you can clear your personal loan debt easily.
Review your expenses
Most people have only a vague idea of what their expenses are every month. Part of the reason is that they simply avoid the stress of looking at the actual numbers. Your mobile phone plan, landline connection, internet service, and streaming subscriptions are among the monthly recurring expenses that can add up significantly.
Expert tip: First, do you need it? For example, landlines are entirely optional for most of us. Secondly, is that premium video subscription really that much better than the normal free alternative? Thirdly, combining plans for phone and internet services with family members can give you more data for a lower price.
These tips are easy to apply for anyone paying off a personal loan, or thinking of getting one. Use them for your next loan and all subsequent ones, and you will build yourself an excellent credit score with minimal effort.