5 Tips to Get the Best Loan
Whether you are shopping for a new home, car or RV, applying for a loan can be overwhelming. Preparation is your greatest advantage. Rather than going in blind and walking out of a lender's office disappointed, you can go in educated with your finances in order and apply with confidence.
Follow these five tips for how to get a loan with a low interest rate:
1. Improve your credit foundation
Your credit score is the cornerstone of favorable loan terms. Get started by reviewing your credit report, checking it carefully and looking for any errors or signs of fraudulent activity. Mountain America Credit Union members have free access to Credit Score Plus where they can check their credit score, view their report and more.
To strengthen your credit profile, focus on these fundamentals to improve your credit score:
- Manage your credit utilization wisely. Keep your credit card balances below 30% of your total credit limit. This demonstrates responsible credit management to lenders.
- Maintain good payment history. This is the most heavily weighted factor in your credit score.
- Address any outstanding issues. Pay off overdue balances immediately and work systematically to reduce existing debt.
- Preserve your credit history by keeping old lines of credit open even if you don't use them regularly. They contribute to your credit history length which is another important factor in calculating your credit score.
- Make sure to diversify your credit mix. Having different types of credit accounts (credit cards, installment loans) can positively impact your score.
- Limit new credit inquiries. Avoid applying for new lines of credit during your loan application process.
2. Maximize your down payment
A substantial down payment significantly reduces the lender's risk, which translates to better loan terms for you—and that can lead to lower monthly payments, reduced interest costs and fewer fees. Have you ever wondered, "How do I get the best rate on a loan?" Putting 10% or more down on a conventional loan may help you qualify for a better rate.
Use our financial calculators to determine how your loan amount, interest rate and term will affect your monthly payment.
3. Research rate discounts and incentives
4. Avoid additional credit inquiries before closing
5. Maintain employment stability
Lenders verify your employment history and prefer to see consistent, stable income. If you're considering a job change, wait until after closing. Thinking about starting your own business? Most lenders require at least two years of self-employment history to consider that income.
If employment changes are unavoidable, communicate with your lender immediately. Moves within the same field with equal or higher pay typically don't cause issues, but transparency is essential.
The key to securing a loan that works for you on all levels—including interest rate, term length and monthly payments—is preparation, patience and persistence. With the right approach, you can turn what may seem like a daunting process into a straightforward path to achieving your financial dreams. Mountain America can help guide you forward—make an appointment with one of our financial guides for more insight into your individual situation.
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