Low rates on loans add up to less cost for the borrower and that is important when obtaining a loan whether it is for a vehicle, business, home or other purpose. Several factors go into achieving a low rate on a loan and understanding these variables can be key to acquiring the best loan rate possible. Loan choices and several low loan rate determinants are discussed in this article in addition to cost related aspects of loan amount and payoff. In other words, obtaining the right loan, with a good interest rate and how to manage the loan involves assessing contributing factors to low loan rates and choosing the right loan based on those contributing factors.
CONTRIBUTING FACTORS TO LOW LOAN RATES:
Loan rate ranges vary between types of loans; for example, new car loan rates can vary from 4.5%-6% dependent on the length of the loan term whereas credit card loans can range from 9%-20%. For each category of loan, a range of rates will often exist which gives you the loan borrower a chance to obtain the lower rate in that range. Typically, some of the factors that influence the rate a loan will achieve are listed below:
*Good credit rating and score
*Low debt to income ratio
*Choice of financial institution
*Type of loan
CHOOSING THE RIGHT LOAN:
Being aware of loan rate readjustments, terms of agreement, and financial institutions business approach and risk tolerance can also affect loan rates. In other words, a newer bank or bank interested in increasing its revenue may adjust rates to stay competitive and attract more business if the increase in loans outweighs the loss of revenue from utilizing a lower interest rate. Refinancing a loan may also present loan borrowers with an opportunity to lower loan rates.
Choosing to apply for a loan and requesting the right amount for a loan can also be important because the loan amount will not only factor into how much the minimum loan payments will be, but how practical and feasible these payments are. Moreover, paying off too much of a loan too early may be disadvantageous if that money can be used to earn more money to pay off the loan elsewhere. To illustrate, if a fixed rate car loan in the amount of $10,000.00 with a monthly payment of $42.00/month and no prepayment penalty is paid off in full within the first few months of the loan, and the loan borrower also wanted to re-model a section of their house, the benefits and opportunity associated with remodeling the house may be lost by paying off the loan too early.
Individual and bank debt to equity comfort zones vary meaning a ratio of .l or less than 10% may be required by some persons or financial institutions in order to issue the loan, but others may facilitate loans with much higher ratios. Generally, a fiscally responsible financial institution will not make a loan, unless they believe it can be paid back with relatively low risk. In the case of credit cards, the risk may be higher based on the credit rating of applicants, so interest rates can rise more dramatically for these types of loans. Another rule of thumb is the size of the loan affects the availability and ease of getting a loan. Larger loans such as mortgage loans involve greater risk so more paperwork, financial reporting and review of the loan applicants borrowing capacity can take place.
In summation, loan choices vary and can benefit for a little insight into the loan process, how loan rates are determined, what the loan will be used for and when. All the variables in the loan decision play a role in an invisible equation of risk, opportunity, affordability, and relevance of the loan. Assessing one’s own individual, family or business financial needs and capabilities is a key part in determining if the loan will be approved and how necessary or useful a loan can be. Sifting through bank rates, debt levels, credit ratings, loan payment plans, and use of capital can be time consuming, can also be a valuable asset in acquiring a good loan and affordable loan interest rate.