Everyone who lends money wants the best possible loan rate. But many times when a loan sounds too good to be true, it is because the actual cost is hidden in the fine print. We let our experienced advisor Evelina work out the concepts, answer the most common questions and guide you through the changing universe of interest rates.
Let’s start by briefly summarizing the most important thing to consider in order to get the best possible mortgage rate on your private loan:
- Use a loan brokerage service and compare lenders to find the best possible interest rate for you without drawing more than one credit report
- Always pay attention to the effective interest rate when you receive a loan offer
- Remember to renegotiate the interest rate as you repay your loan
- Avoid fees and high effective interest rates by pooling your spread credit into a larger loan
Below we go deeper into how interest rates are set and explain exactly what you can do to push it.
The trick that gives you the best interest rate
Use a loan brokerage service like Good Finance
By putting different offers against each other in competition, you expose the lenders, which pushes the interest rate. Compare and negotiate as far as possible – this is the way to a “cheap” loan. But there are things you can do even before you submit your application and start comparing offers, which increases the chances of a better interest rate.
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Keep track of the effective interest rate
Keeping track of the difference between effective and nominal interest rates can save you many thousands of dollars. The nominal interest rate is the cost of the loan itself. But it is the effective interest rate that reveals what you will actually pay, as it includes the bank’s other fees and administrative costs. Although the nominal interest rate is low, the effective interest rate can pull off well.
Make a credit report on yourself
By ordering a credit report on yourself from Minuc.se you can make sure that everything is correct and that your credit rating is in good working order. What you want to avoid is to draw on a lot of credit information in a short time. If you have done so, it is best to wait to apply for loans and compare loans.
Generally, credit reporting is most active during the first three months. During this period, new lenders do not know if you have accepted the loan offer that the respective credit information applies to, which increases the risk of lending money to you. This also reduces your chances of getting good loan rates. Even though a credit report remains in the register for 12 months, it is really only during the first three months that they significantly affect your credit rating.
A major advantage of using a loan broker is precisely that all lenders share a single credit report.
Terminate unused credits and subscriptions
Most of us have subscriptions and credits we no longer even use. The more people who are registered with you, the more your credit rating and your chances of getting good interest rates will be affected. Therefore, make sure to close all credit sources that you do not use.
Pay off the debts you can
If you have high debt, make sure to settle as many as you can before applying for your new private loan. Although the various amounts are small, scattered debt does not look good.
Pay the bills on time
Put your bills on direct debit to the extent possible. This way you will not have to risk that your debts are due and you will receive payment notes.
Find a co-applicant .
A co-applicant on the loan greatly improves your chances of low interest rates.
Which banks offer the best loan rates?
Interest rates differ greatly between different banks and lenders. A common myth is that big banks provide better loan rates than small banks. However, it is a truth with modification. If you borrow against a collateral, for example at a housing deal, a larger bank can often give you really good interest rate terms. If you are unable to repay your loan, they can forcibly sell your home and thus get their money back.
But when it comes to unsecured home loans, there are switched roles. This is because the major banks have high costs linked to their operations and therefore cannot afford to squeeze profit margins on relatively small loans. Smaller banks have a more efficient organization and a different cost structure that makes them more competitive with regard to private loans.
Here you can read more about which lenders are considered the best this year.