Whether you are applying for a mortgage, student loan, personal line of credit, small business loan, or auto financing, the rate you will end up paying could vary widely based on the interest rate of your loan. A couple of percentage points may not sound like a lot but a two-percent difference can amount to hundreds—if not thousands—of dollars, depending on the size and term of your loan. While there are some factors you cannot control, such as the value of the investment (i.e. the cost of your home, vehicle, or tuition), and the Federal Funds Rate that banks use to establish their Prime Rate, there are many other factors that you can affect by making changes before applying for a loan.
- Your credit score. This is the first and most important factor affecting your interest rate when applying for a loan. Lenders use your credit score as a litmus test to determine how big of a risk you are to not paying back your loan, but there are steps you can take to improve a low credit score, such as paying off credit cards, avoiding opening new credit accounts, making payments on time, and checking your credit to ensure there are no inaccuracies impacting your score.
- Consider a co-signer. When applying for a loan, a co-signer may help you improve your overall standing with a lender, providing another individual who can pay back the loan if you are unable to do so.
- Compare apples to apples. You have probably heard how important it is to compare offers or quotes from multiple lenders when applying for a loan. Be sure to look at the full cost of each loan. Knowing the monthly payment amount and the interest rate is helpful, but there are other costs to consider as well, such as lender fees, points, insurance, and penalties.
Local banks often have loan officers in-house who can work with you to make recommendations on how you can improve your situation, as well as suggest better solutions to meet your needs. If you are considering a loan, schedule an appointment with a lending professional from Franklin Savings Bank to learn about your options and what is best for your situation. Our team of mortgage lending and commercial lending professionals are here to help!