Can You Qualify For A Low-Interest Personal Loan?

On March 15, 2020, the Federal Reserve cut interest rates to nearly 0%. Federal student loans were put on deferment, with the hopes that businesses would be able to better manage their structures and limit layoffs.

So what’s going to happen to mortgage rates, student loans, and credit card rates?

Mortgage Rates: Depending on your economic situation, and if the odds are in your favor, refinancing your mortgage could result in lower monthly payments. However, refinancing does come with extensive costs and it’s important to not rush into anything. According to analysts at Bank of America, the Fed is expected to maintain rates near zero despite economic return.

Student Loans: The Fed’s changes in rates are vastly going to impact the status of student loans. Or, impending college tuition. The current prediction is that student loan rates are going to be lower until at least July 1, 2021.

Credit Card Rates: The U.S. Prime Rate has an index that determines the interest you’ll pay. Unfortunately, interest rates are variable, and as the Prime Rate rises or falls, your interest rate changes. With how volatile the economy is, it’s a good time to start considering consolidating debts. However, keep making payments as debt tends to pile up and more debt leads to more heartache.

One of the ways a personal loan can be categorized is in two categories: unsecured and secured.

Unsecured personal loans are without collateral (for example, credit cards), and is the reason why banks consider them risky because if someone defaults on a loan, the bank is the one that’s out of money.

Secured personal loans, on the other hand, uses a car or home as collateral. So, if a borrower defaults on a loan, the bank can seize the asset. Another type of personal loan is called a cosigned personal loan. This originates when an unsecured loan has dual applicants. In this case, the lender considers whoever has a higher credit score, the primary borrower. Each applicant is equally responsible for repaying the loan.

Next, would be a fixed-rate loan where the interest rate stays the same throughout the life of the loan and so do your monthly payments. However, you might end up paying more in interest as compared to a variable rate loan, where both the interest rate and monthly payment changes.

While a fixed-rate loan allows you to budget more accurately, a variable-rate interest loan could be more beneficial in the long run.

A personal line of credit is another option when it comes to personal loans. This form of a loan is one that you have easy access to funds that you can draw from as and when needed. While it closely resembles a credit card, a personal line of credit gives you access to cash and comes with lower interest rates. Each time you withdraw from your line of credit, you might repay that withdrawal in monthly installments and interest fees, or you’ll just have a monthly minimum payment amount. Personal lines of credit can either be secured or unsecured and have fixed or variable rates.

When it comes to personal loans, there are factors to take into consideration besides the rates that are associate with them. Low interest rates might be appealing, but what cost do they come at?

Lastly, debt consolidation loans are a form of personal loans used to pay off debt such as credit card balances.

  • Some personal loans penalize borrower’s for early payments
  • How well the economy is doing and where the prime index lands are pretty big determinants when it comes to interest rates. And unfortunately, interest rates are variable
  • Personal loans are high-risk loans, which means lenders are going to require good credit

If you’re applying for a personal loan, know the type of loan you want (unsecured or secured), what the loan is needed and going to be used for (home equity, debt consolidation, etc.), analyze your budget and current payments to decide if a personal loan is the best option for you, and do your research on which lender is right for you.

Nicky Grover

By Nicky Grover

Nicky Grover is an author and analyst for BanksBestRates.com with years of experience working in the Finance Sector for firms such as Wells Fargo, Nike and Google. Grover has specialized in analysis of budgets and revenue, economic forecasts, and executive-level financial reporting. Her work has provided her with expertise utilizing tools from Horizon 360 to Salesforce to SQL Grover earned her Bachelor’s in Communication Studies and her MBA with a focus in Finance and Economics. In her spare time, Grover likes staying up to date with current events, hiking, and spending time with her boyfriend, friends, and family.

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