The rate of interest charged by a lender usually depends on a variety of factors. Whether you are looking for a mortgage, car loan, personal loan or any other type of financing, you will need to shop around to find lenders with the lowest personal loan interest rates. Knowing the factors affecting the rates of interest charged by lenders will help you make informed decisions when looking for an affordable loan.
There are many loan brokers who can help you search for the best loans on the market, so it is always a good idea to consult a loan broker. The ideal broker should be experienced in helping borrowers secure the most affordable loan. Below are the three key factors affecting the interest rates charged on loans:
i) Credit Score
The credit history of the borrower has the biggest effect on the rate of interest charged. Therefore, you need to build your credit. If you have recently defaulted on a loan, had your car repossessed or your home foreclosed on, your credit is probably bad, so you have to pay a premium to get a loan. Similarly, if you have recently filed for bankruptcy, your credit is bad, and you cannot secure a low interest loan. That is why consumers are always advised to check their credit reports regularly and settle any pending debts according to the agreed terms and conditions.
ii) Choice of Lender
The main reason why there are many brokers out there is because there are many lenders out there and they all offer loans and financing that come with different terms and conditions. Since personal loan interest rates differ from lender to lender, you will need to shop around for the most affordable loan. Fortunately, there are many online tools that can help you with your research. There are also many brokers who can help you with the search.
iii) Economic Conditions
The prevailing economic conditions in the country and globally have a big impact on interest rates. If the economy is doing well, there might be a lot of money circulating in the economy. This will lead to inflation. To deal with the rising inflation, the government may raise the base lending rate to attract investments from corporations, fund managers and private citizens among other types of investors. This will lead to a rise in interest rates.
Knowing that interest rates differ from time to time as well as from lender to lender can help consumers find the right lender for their needs.