How to get a Better Interest Rate on a Bad Credit Personal Loan
If you’ve decided to take out a bad credit loan, then you likely know that it comes with less than perfect terms than that of a traditional loan that you would receive from a bank or credit union. However, often when you have a bad credit score, you are left with no choice but to take out this type of loan, despite its notoriously higher interest rates and bad terms. That being said, you can do a few things to ensure that you get the best terms possible on a bad credit loan so that it will not weigh your finances down too drastically. Here are a few ways to ensure that you get the best interest rate possible on your bad credit loan.
Know Your Credit Score and History
Before you start filling out an application for a bad credit loan, you should know what is on your credit history. Could your low credit score possibly be caused by an error on your credit report? It is not uncommon for errors to pop up on credit histories and so it is imperative that you check before going ahead with your bad credit loan. Look at your credit report a few months, or at least weeks, before taking out a loan so that if there is an error, you have time to dispute it and raise your credit score, and thus potentially make you eligible for a regular loan.
Concentrate on Your APR
Loan rates are usually shown as an annual percentage rate, otherwise known as an APR. This APR includes all of the fees and the interest combined so that you can easily compare loans. The lower the APR, the more money you save. Make sure to take the time to do your homework and compare bad credit loans’ APRs before choosing one so that you can snag the best deal. You can use an online loan calculator to try out different loan amounts, loan terms, and interest rates to see what exactly you’ll be dealing with for each loan.
Don’t Just Compare Interest Rates
You should not just be looking at the interest rates of bad credit loans, but the terms as well. Make sure that when you are comparing loans, you factor in which ones have the better conditions. In some cases, a worse interest rate is worth it if it means getting better terms, as it could make the loan more manageable than otherwise. Make sure to check websites and online search tools for a comparison of loan terms.
Focus on the Total Cost of The Loan
To avoid falling into the financial trap of not being able to repay your bad credit loan, it is important that you do not just focus on the amount you will be paying per month, but instead the total cost of the loan. This includes the amount you spend on the interest rate. In other words, make sure that you look at the whole picture of a bad credit loan, and not just what you’ll be dealing with on a month-to-month basis.
Put Up Collateral
One of the best ways to lower your overall loan amount and your interest rate when it comes to a bad credit loan is to put up collateral for it. The main reason as to why the interest rate on bad credit loans is so high is the fact that lenders put themselves at greater risk by lending money to you due to your low credit score. You can negate this by putting up collateral, such as your house or car. However, keep in mind that doing so is risky, since if you end up not being able to repay the loan, the lender has the right to repossess whatever you put up as collateral.