How To Get Lower Interest Rates

What is a low-interest loan?

A low-interest loan is a loan that is offered with a low APR (annual percentage rate). This determines how much money you will be borrowing overall, including the interest you will pay and any set-up fees the lender requires.

Related: What Is APR

What is the cheapest type of loan?

When it comes to borrowing, there are two main types of loans, secured and unsecured. While secured loans allow the borrower to use collateral to get a lower APR, unsecured loans don’t allow for this added security for the lender, often meaning they come with higher interest rates.

Read more: What Are Interest Rates & What Do They Mean

How To Get Low-Interest Loans

Personal loans are unsecured loans. However, this doesn’t mean they have to be expensive. We have outlined the best tips and processes for securing a low-interest personal loan.

1. Check your credit score

Your credit score is what a lender will use to determine the APR that you are eligible for. Therefore, ensuring that you have a good credit score is key to getting a lower-interest loan.

Presented as a number between 0-999, with anything above 881 considered ‘good’, your credit score is determined by your past repayments and borrowing. As mistakes are not unheard of, it’s important to check your credit score ahead of taking out a loan to avoid unfair charges. If your credit score is a little on the low side, there are ways to increase it, such as:

• Paying any existing repayments on time
• Reducing your current debt
• Ensuring you are registered to vote at your address

To learn more, check out our guide to What Affects Credit Score.

2. Shop around for lenders

No two lenders are the same, so it’s important to consider your options when looking for a loan. When considering a loan, look at the APR, as well as the type of loan and how long you have to pay it back. Many lenders allow you to check your loan eligibility before agreeing to the loan without affecting your credit score.

Sunny’s no-obligation quote finder allows you to compare a variety of lenders in one place to suit your personal financial needs. Fill out an online form to see loans personalised to you.

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 3. Lower your debt-to-income ratio

As well as your credit score, lenders will also consider your debt-to-income ratio (DTI). This considers your current debts compared to your annual income, which lenders will use to determine whether you can afford the agreed repayments.

A low DTI can also help secure lower interest rates on a loan. To increase your DTI and better your chances of getting a low-interest loan, try to avoid going into any further debt, paying off existing debts and increasing your income where possible.

3. Consider how much you want to borrow

How much you want to borrow contributes to the interest rate associated with the loan. Smaller loans may have larger interest rates because of the fixed costs of processing the loan, whereas larger loans may have smaller interest rates because these are usually over a longer period of time.

You should only borrow what you need though, as borrowing more can lead to financial strain in the future. Avoid borrowing more to get a low-interest loan, as if you borrow more over a smaller period, the interest rate may be higher.

4. Consider how long you want to borrow for

When applying for a loan, choosing a suitable repayment period to suit your needs is key. Although loans with longer repayment periods can mean lower monthly repayments, they can increase the interest paid overall. On the other hand, agreeing to a repayment period that is too short for you can lead to much higher monthly repayments, which, if not properly managed, can lead to missed payments and further costs.

Additionally, check to see if your lender allows the loan to be repaid early, thus reducing the interest you will pay overall if you can repay the loan sooner than expected. Some loan providers have early repayment fees that prevent this, so it’s important to understand the terms of the agreement ahead of deciding on a loan plan.

5. Stick to a fixed rate

The same as mortgages, personal loans can also be offered at a fixed or variable rate. This refers to the interest rate on the loan, with a fixed rate ensuring that the interest rate stays the same throughout the full lending period and variable meaning that the lender can increase or decrease the rate during that time. Although it may be tempting to agree to a variable agreement that starts with a low interest rate, ensure that your loan is manageable and stays low-interest by opting for a fixed rate.

6. Check for discounts

To make sure you’re getting the best possible deal, check to see if you’re eligible for any further discounts or, if not, how you can qualify for them. For example, some loan providers offer a reduced interest rate for setting up automatic payments, while others, such as banks, may offer lower interest rates for existing customers. Check with your bank or chosen loan provider to see what you may be eligible for.

Alternative options to a low-interest loan

Before agreeing to a loan, consider if that is the best solution for you and whether other options could be better suited to your personal circumstances. Other short-term options include:

• Setting up an overdraft
• Taking out a credit card
• Refinancing

Low-interest rate loans at Sunny

At Sunny, you have the opportunity to compare loans, check your eligibility for a loan and see what your interest rate would be. With loans from £50 to £5,000, you can borrow up to 36 months, and there are no hidden or early repayment fees, so you can save on interest. Our representative APR rate is 89% but of course this all depends on the above, so you may be eligible for a low-interest rate loan.

If you’re sure that you want a loan, you can apply online today and get your money the same day if you’re accepted. Or, for more money-savvy tips and advice, check out our Good Vibes blog.