When did you last apply for a loan and what was your key consideration when deciding on the best lender? If you are like the millions of other Americans flocking financial services provision institutions every year for a cash advance, you had your eyes fixated on the interest rates.
Whether you are applying for a home owner loan, mortgage, a multi-purpose personal loan or any other type of loan, it is only logical that you go after the most affordable loan. And this almost always involves sourcing for the loan service provider that not only charges the lowest interest on the credit but also imposes minimal additional loan costs. But what is a low-interest loan? Is there a standard low-interest rate that lenders must comply with?
Ideally, the financial regulatory agencies will in some cases, especially with the payday loans, only dictate a price ceiling above which interest rates must not exceed. The standard rate is then influenced by such factors as the Federal Reserve recommended rate, the forces of demand and supply as well as the competition between different lenders. This effectively means that when looking for the low-interest loan, you will have to go through the different loan packages availed by different credit providers.
We have however done all the heavy lifting, compared different lenders, and vetted the terms for their varied types of loans. In this guide, therefore, we have compiled a list of some of the most affordable loans by looking at both their interest rates and overall loan costs. We start by looking at the factors that affect the cost of a loan and criteria used to arrive at the best loans.
What factors affect the cost of a loan?
i. Interest rate:
Interest rates have the biggest influence on the cost of a loan. And whether fixed or variable interest, the rates are almost always negotiable. Your lender will start by assessing your creditworthiness when determining the rates where creditworthy borrowers attract lower interest rates.
ii. Fees and charges:
The fees and charges levied at the different stages of loan application and repayment will have the second most significant impact on the cost of the credit. These include origination fees, closing fees, loan application processing fees, and penalties on late and missed repayments. A low-interest lender will always strive to keep these extra charges at a minimum.
iii. Loan repayment period:
The loan repayment period will also have a near-direct impact on the cost of the loan. Note that while the longer-term interest may seem more affordable because of their relatively affordable monthly installment payments, they are often the most expensive as you pay more interest overall.
iv. The flexibility of the loan repayment:
What does the lender say about loan prepayments? If the lender allows for interest-free prepayments, you may then be able to push the cost of the loan down by making lumpsum prepayments on the loan and vice versa.
Criteria used to rank different low-interest loans:
- Interest rates
- Additional fees and charges
- Loan type
- User experience
- Loan processing wait time
- Need for collateral
- Customer support
Best low-interest loan types in 2019?
How can you qualify for a low-interest loan?
i. Find a lender with competitive rates:
If you hope to land a lender with competitive interest rates, take you time to shop around different lenders while vetting their loan terms. Here, you will be looking at not just the highlighted interest rates but also their loan costs and other associated fees and penalties usually hidden in their fine print.
ii. Ensure you meet their pre-qualification terms:
Different lenders have varied requirements that you must fulfill if you hope to qualify for a loan here. These include credit score and annual income minimums, debt-to-income ratios, and solid credit history. Ensure you meet these requirements before applying for a loan with your preferred lender.
iii. Work on your credit scores:
Your credit score and credit history plays a significant role in influencing your creditworthiness. Always strive to improve this score by paying your bills and debts on time if you hope to boost your chances of qualifying for a low-interest loan.
iv. Sign for auto-pay during loan application:
Most lenders will almost always offer you a discounted loan interest if you sign up for autopay during the loan application. This is offered by most financial services provider as an incentive to encourage timely loan repayments.
There is no limit to the number of institutions, both established banks and digital platforms offering low-interest loans. In this list, we have included some of the lenders that match attractively low interests with friendly loan terms. We were particularly interested in lenders that don’t subject their borrowers to unnecessary and punitive fees, charges and penalties and also offer unsecured loans. We advise that you consider these factors when deciding on your preferred low-interest lender. Other key factors that you should also consider taking into account include the loan repayment periods allowed and the time they take to process, approve and fund the loan.
No, there are plenty of low-interest loan service providers who don’t require collateral for their loans. However, to qualify for the lowest interest rates without securitizing your debt, you must have a solid credit history spanning several years and a near-excellent credit score.
Yes, looking at all the low-interest loan providers featured on this guide you will notice that they don’t give a fixed interest rate but a range for every loan type. In deciding the actual interest to charge against your loan application, the lender takes into account several factors, among them your credit score, history of borrowing, and loan repayment periods. If you are applying for the loan over the phone or by physically presenting yourself to the bank branch, you have an opportunity to negotiate for better loan terms with the lender. This is achieved through adjustments to the different loan requirements like loan amounts and repayment periods.
Different loan service providing companies have varied loan application requirements that every borrower must familiarize with before making an application. To a large extent, however, these loans are only availed to good and excellent credit borrowers. Most lenders shy away from poor to bad credit borrowers because most of these loans are unsecured. The few that do lend fair credit borrowers expose them to punitive terms like high interest and short loan repayment periods.
Loan interest refers to a payment made by a borrower to a lender for the use of credit advanced to them. This interest is repaid at a particular rate, often referred to as the interest rate. Loan costs on the other hand to the overall fees charged on a borrower for the use of the loan. This includes all the fees associated with the pre and post clearance of the loan. Some of the fees and charges making up the loan include loan application processing fees, origination fees, closing fees, penalties on late/missed payments and prepayment charge and any other charge or fee associated with the loan.
Missing a payment for the low-interest loan has two significant impacts. First, it attracts a penalty in the form of a fixed charge, percentage of the missed installment, or increased future interests. Secondly, the missed payment will leave a dent on your credit history that in effect lowers your credit score.
Yes, the credit score refers to a rating given to a lender by the different credit reference bureaus. Credit history, on the other hand, refers to a loan applicant’s record of borrowing and is the primary tool used by the different credit reference bureaus to arrive at the credit score.