19 January 18
Reading time: 6 minutes
Not all loans are created equal.
Whether we’re planning our next big purchase or covering unexpected emergency expenses, we tend to turn to a credit union, bank or peer-to-peer lender for a loan. But how can we be sure we’re getting a loan that offers us the perfect combination of flexible terms, low fees and even lower interest rates?
Landing the ideal loan doesn’t have to be difficult. Here are just some of the things we should do to get a great loan first time, every time:
When’s the last time we really hit the books and studied? Bleary eyes aren’t much fun, but landing a low-interest loan has more in common with those sleepless school nights than we might think.
Before we apply, it’s helpful to figure out exactly what we need the loan for, how much we need to borrow, and what repayments we can afford.
By running the numbers and checking our budgets, we’ll have the information we need to pass the most important test of all: finding the best financing options and landing a great rate.
There’s no denying we’re easily drawn to flashy advertisements, but we shouldn’t just jump at the first option we see.
Instead, we need to take advantage of the countless opportunities at our fingertips. We’ll admit, this choice can leave us feeling a little overwhelmed, but with sites like finance.co.nz and interest.co.nz, comparing rates, fees and charges to find finance that’s right for us has never been easier.
Need help making a choice? It’s easy with our guide to personal loans.
Improving our finances is one of the easiest ways to unlock a low rate. That said, it isn’t always practical – especially if we need money fast! At times like this, a guarantor could be our best option.
Loan guarantors are friends or family who agree to cosign our loan applications. When they do, they take responsibility for any amounts owing if we end up being unable to pay off our loan.
Lenders like guarantors. They spread the risk around. As they’re more likely to get their money back this way, they’re also more likely to feel comfortable offering us lower interest rates.
What we should remember is that this reward also leaves our guarantor at risk. This is why we need to read up and make sure they know the risks of being a personal loan guarantor before they sign on the dotted line.
We judge lenders based on their rates, fees and charges. At the same time, they judge us on our credit score.
Our credit score is a numerical representation of our financial history, including credit cards, debts and outstanding loans, and it’s how lenders determine how trustworthy – or risky – we are.
The riskier we are? The less likely we’ll receive the amount, or the rate, that we want. In fact, a poor credit score could see us paying more interest than a comparable loan given to someone with good credit.
Credit scores are with us for most of our financial lives, but a bad credit score doesn’t have to be. Disputing errors, consolidating outstanding debts, and making prompt repayments are all easy ways we can improve our credit score and achieve better loan terms. It’s that simple.
Ever heard the Greek tale of Sisyphus? Doomed to an eternity of pushing a boulder up a hill, day after day he’d struggle under its weight only to watch it roll back down again every time he reached the summit.
What does this story have to do with our finances? Like Sisyphus, we’re often pushing our own financial struggles ahead of us, only to watch them tumble back down as we trip up and make a mistake, such as applying for too many loans at once. This can make us look desperate, and results in queries on our credit report which could negatively impact our credit score. A score we’ve been working had to improve!
Even though we’re eager for a loan, we should only apply for one we’re certain we’ll get.
Not only are all loans not created equal, but they’re also not all created for the same purpose. Unsecured loans, for example, are tailored for those with lower credit scores as they’re easier to get. But they come with higher rates. Secured loans let us tap into higher amounts and lower rates by using a car – or similar asset – as security.
This security reduces the risk to the lender so we’re able to access lower interest rates, but if we miss our loan repayments, the lender could also take ownership of the item we’ve put up in order to cover their losses.
But so long as our finances are in order, the budget numbers add up, and we’re confident we’ll have no issues making our repayments, then a secured loan is almost always the best bet.