Get a great rate on your next loan

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Whether you are looking to buy a car or finance a holiday home, your interest rate will help you determine how much you pay per month when buying. In addition to the purchase price and credit term, your interest rate is an important driver in your monthly payment and in the end you pay the total for the item. High interest rates mean higher monthly payments and potentially thousands of extra dollars in interest expenses.

Low interest rates allow you to borrow money at lower rates, ensuring a lower monthly payment and lower costs over the life of the loan.

While everyone wants a good interest rate, not everyone will qualify for one. Here are three ways you can lock in the best possible interest rate for your next loan.

Keep your credit in check

Keep your credit in check

Depending on your loan, the interest rate is maintained by the Federal Reserve, market forces or a combination thereof. When the economy is doing well, interest rates tend to rise. When the economy is doing poorly, such as during a recession, rates fall. These factors are beyond your control, but your credit score is a huge factor in determining the interest rate you can control.

Your credit score should be at least 720 in order to qualify for the best possible interest rate. If you are not quite there yet, you can improve your score by paying all your bills in a timely manner, contesting errors in your report, keeping your balance on all credit cards, and working to pay off all your debts.

It may take months, if not years, to renew your credit (or to establish a loan for the first time).

Give yourself plenty of time in advance to improve your score before applying for a loan. Accept your credit reports a few months in advance (it’s free), and if time briefly raises the question of quick re-processing.

Shop around

Shop around

What one lender can give you varies significantly from what another lender does. Credit unions, for example, can usually offer lower rates than large, national banks. Also, if you have been bankrupt in the same place for some time, first get a quote from that institution first. Sometimes banks offer lower rates to long-term customers as a way of saying “thank you” for doing business with them and to keep good customers from looking elsewhere.

Shopping around for a loan can negatively affect your credit score, because every time you apply for a loan, your credit takes a hit. To minimize damage, make all your purchases in a short period of time. Mortgage companies and car loan lenders know that buyers will want several different offers – that’s what savvy borrowers do. As a result, credit scoring models look at the windows of the time you shop; as long as you apply for a home or car loan, your credit will only be hit once during that period no matter how many questions you get.

How much time do you have to shop around without checking investigations? It depends on the loan appraisal model, but you can count on at least two weeks and maybe even up to 45 days (especially for home loans).

Note: This applies only to home and auto loans. Credit card applications and other credits will affect your credit score every time you sign up.

Take the right deadline

Take the right deadline

When you get a loan, typically long-term loans will have lower interest rates than shorter ones. Keep in mind, however, that a longer loan period means that it will take longer to pay off your loan. In the end, you may pay more money in interest than if you took a shorter loan at a higher interest rate.

The opposite is usually true in the accounts in which you could earn – such as a certificate of deposit. When the 1-year rate is at 1.20% APY, you may see a 5-year rate at 2.25% APY. If you can afford to cash back your dollars, you will make more money on long-terms.

It’s always best to pay off your debt as soon as possible, so if you can afford a larger monthly payment, go for a shorter loan period.

Want to see the numbers for yourself? Try some scenarios in case of our loan.

By keeping your credit score by checking, buying and getting the right term for your loan, you are setting yourself up for the best interest rate on your next loan.

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