The Lowdown on Qualifying for Low Interest Rates

Historically low interest rates! There’s never been a better time to borrow! Rock-bottom home mortgages! Zero percent loans!

The Fed drops interest rates to stimulate the economy. And when borrowing becomes cheap, American consumers typically respond by signing up for mortgages, car loans and credit cards.

But before you get your hopes up about buzzworthy low interest loans, make sure you’re a candidate for those attractive rates. By asking yourself the following questions, you can better understand what lenders are looking for, how they make their decisions and how to position yourself to secure the best rates possible.

• How high is my credit score?
  The lowest interest rates are typically offered to people with the highest credit scores. Each lender may evaluate score ranges differently and use other determining factors to secure lending. Lenders like OneMain will take the time to evaluate your circumstances and help you find a solution. But take a close look at your score and see if you want to take steps to improve it so that you qualify for the lowest rates.

• How much credit history do I have?
  When financial institutions loan you money, they’re taking a risk on you. Lenders will want to see that you have a consistent history of paying your bills on time. The longer you’ve had credit, and the more you can show that you’re responsible in paying back your loans, the more a lender will be willing to give you financing at a great rate. The lower their perceived risk, the lower the interest rate.

• How much debt am I already carrying? Do I know what “DTI” is?
  Your debt-to-income ratio is important because it helps lenders evaluate how many other people you owe money. They also want to be sure you have enough income each month to cover your monthly repayment as well as your current debt. Plus, the more outstanding debt you may have on your credit file, the lower your score may be (see bullet 1). Additionally, you might not get the lowest interest rates on a new loan if you’re already carrying a high debt load on existing loans.

• Overall how “creditworthy” am I? Do I know what’s on my credit report?
  Lenders may have different risk tolerances, but most will want some assurance that you’ll be a reliable customer. To that end, you may be presented with two loan options: unsecured or secured (meaning, you’ll need collateral such as a vehicle to secure the loan). You can also use other assets to demonstrate your creditworthiness, such as savings accounts, 401(k)s, property equity, etc.

• Is the low credit offering coming from a credible lender?
  Although it’s tempting to just shop online for low advertised rates, it’s worth researching the lender as well to see if they have a track record of lending to someone in your situation. For example: Will they let you check if you’re prequalified first before doing a hard credit inquiry? Will they give you an idea of what rate you qualify for, no strings attached?

• Is now really the best time for me to seek financing?
  Regardless of what the Fed rates are, or what the latest headlines and commercials say, at the end of the day you should ask yourself if now is the best time to apply for a loan. Can you wait a few months and work to up your score or build a stronger history? Focus patiently on your financial wellness, and start online with our free Credit Scores and Reports course. Improve your position until you qualify for terms that make dollars and sense.

The power is in your hands.

The only thing standing between you and optimal interest rates are time and strategy. When you take control of your finances, the rewards are great and lead to a more secure future. Whatever the Fed rates are, make decisions that are right for you, both short- and long-term.