If you’re looking to buy a new car, take a holiday of a lifetime or maybe tie the knot – there’s a good chance you’re considering taking out a loan to pay for it. Searching for a loan has never been easier, but how many of us know that it’s not just a person’s credit rating that affects the % interest rate they are offered? Here we take a look at some little known factors that affect the Annual Percentage Rate (APR), and offer some top tips to help you get the lowest loan rate possible!
1) Don’t apply for several loans
This can have serious consequences on your credit rating overall. To any potential lenders, it will reflect a sense of desperation in applying for multiple loans. The safest option in this situation is to use a broker to check your eligibility before applying, which will not impact on your credit file. A good broker will do all the hard work in finding the best loan rate you can achieve, tailored to your individual circumstances.
2) Boost your credit score!
The higher your credit score, the lower the rate you’re likely to be able to get. Whilst there was a time that you’d have to pay to check your credit file, several companies such as Equifax, ClearScore and Noddle now offer a free service. Once you know where you stand, there are some relatively straightforward ways for you to improve your score and boost your chances of the best rates.
3) Increased loan size
Ok, this one does sound counter-intuitive but bear with us! Different loan amounts attract different rates of interest, and generally speaking the larger the loan the lower the %APR. This doesn’t mean having to borrow a huge amount more than you originally had in mind though. It could be a small amount that puts you into the next APR bracket. When speaking to a loan broker, indicate that you are flexible on loan amount if it opens up a more attractive rate.
4) Shop around
Find the best rate you can! This may be obvious, but make sure to use the plethora of loan comparison websites available. These will do ‘soft’ searches for you – meaning there’s no credit search print on your credit file – showing you which lender will offer you the best terms. Alternatively, you may use a broker who will find the most suitable loan for your profile. Remember, your bank may say that it offers preferential rates to existing customers, but often there are cheaper rates out there. Get shopping!
5) The 30% rule
It is believed that the more you use the credit that’s available to you, it actually improves your credit rating. This shouldn’t be read as a license to go on a shopping spree and max your credit cards! It’s a case that by using credit and repaying promptly, you are demonstrating that you are a borrower that can be trusted. The ‘utilisation’ of your available credit can improve your credit rating, which in turn can improve the %APR you are offered. Keeping your balances up to 30% of your total available credit can give your credit rating a boost.