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Three Things You Can Do to Obtain a Lower Interest Rate on a Personal Loan

[Dec 18, 2008.]


With the Federal Reserve lowering interest rates to near zero percent, many consumers are surprised when they apply for a loan, that the rates offered are not substantially lower than the last time they applied. This is especially true of personal loans, such as auto and credit cards.

This is the reality of today's credit markets because lending institutions are still nervous about lending, even if the Federal Government does not seem nervous and is, indeed, lending at extremely low rates. To read some details about how this dynamic works, here's a good article from the New York Times.

But for those more concerned with what they personally can do to obtain lower interest rates  on a personal loan, here are five practical suggestions for how to do exactly that:

1. Bring Paycheck Stubs -- Part of the reason that banks are nervous about lending, and thus insist on higher interest rates than they would in less nervous times, has to do with concerns about employment. If the loan applicant is steadily employed and has been for some time, consider bringing that up--and bringing proof--to the lending institution. They'll likely ask for this anyway, as the personal loan approval process gets in motion, but think about bringing it up early and often, to make the point.

2. Get a New Credit Card -- This idea doesn't always work, but if you have been using the same credit card(s) for a long time, consider shopping around for a new one with a lower interest rate. Even if the lower interest rate is only introductory or for a limited time, the lower interest rate should drop the monthly payment on that balance and can even raise a credit score in the process. Even with imperfect or bad credit, shopping around for a new credit card is worth a shot if the current cards are high interest and have been that way for a while.

3. Check Your Credit Report -- Many people with imperfect or bad credit stopped looking at their credit report a long time ago. This can backfire. At the very least, people should understand the perspective of the lending institution considering making a personal loan. See what they're seeing. Look at the credit report in question and, if there are blemishes, attempt to remedy or explain them. For example, if credit problems are mainly confined to one time period, a personal loan applicant might be able to explain exactly why that time period was a problem (divorce, for instance). Especially if the credit problems are far in the past, say so--and explain why things are different now.

Although it may seem that a bank is an impersonal institution with no feelings for the individual, it's surprising how many personal loans are funded on the personality of the person applying for the loan.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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