For most borrowers out there, few phrases fill us with more dread than “interest rates.” After all, they end up costing us a lot of money, no matter the lender that we are working with and no matter what country we live in. Thankfully, there are ways that we can get loans that do not have these high-interest rates.
Unfortunately, they are not always going to be the most accessible options available. Low-interest rates tend to be a side effect of having a high credit score rather than just being inherent to the credit agreement itself. That said, it isn’t impossible to find lån med laveste rente with a lower credit score. It might just be more difficult. That is what we’re discussing today.
What are Interest Rates?
When we borrow money, there is almost always going to be an inherent cost that comes along with it. Essentially, we’re paying for the ability to borrow. Interest rates are simply the manifestation of this idea, and that is why so many folks hate to hear about them in relation to their loans.
We all know that we have to pay back the original amount that we borrow from lenders, but we have to keep in mind that we’ll also be on the hook for any interest that has been charged along the way. The specifics of the amount will depend on several factors.
For one thing, you’ll want to pay attention to how long the credit agreement is or is going to be. This may impact what interest rate the lender gives you, but either way, it will play a part in how much you owe. Many borrowers prefer shorter credit agreement repayment plans because it means they may be paying less.
The longer that interest accrues, the more money we’ll have to pay. Therefore, the goal for many of us is to find a happy medium between giving us enough time to make the repayments without struggling each month while still not being too long so that there isn’t too much interest that racks up. It’s not an easy balance to strike, unfortunately, and outside factors also have plenty of impact here.
Simple Interest
This is one of the two main types of interest rates. When you have a simple rate on your credit agreement, it means that the interest you accrue will only be calculated based on the initial amount that you’ve borrowed (the principal amount). Therefore, the percentage that is used in the calculation is only applied to the principal.
Unfortunately, it’s not very common for us to see loans with simple interest rates these days. Instead, it is usually only in action for our own savings accounts, setting us at a bit of a disadvantage. That is not to say they’re impossible to find, though.
Compound Interest
Before we explain how this type works, you may find it helpful to check out resources like this one: https://www.consumerfinance.gov/ask-cfpb/how-does-compound-interest-work-en-1683/, to get an idea of what you can expect. Compound interest is different from the above type in that any pre-existing interest that has been added to the total amount of the count is included in charge of interest.
Naturally, this means that, as consumers, we end up paying more. As frustrating as it can be, that’s just the reality that most of us will face. It’s better to be prepared for it than to be totally blindsided, though.
Finding Loans with Lower Interest Rates
Now that we’ve covered the basics of what interest rates are, you’re probably wondering how you can find loans that don’t have very high-interest rates. This can be tricky, even if you’re experienced in the world of finances. Unfortunately, there’s just not much that we can actively do to ensure we have a lower rate.
However, one option that we do have is that we can utilize external comparison sites to get an idea of what certain lenders charge on average. Although these figures should not necessarily be taken as pure fact, they can at least help us know what to expect when we submit our applications. We do have to submit some personal information, though.
Why is that? Well, interest rates are often at least partially determined by the credit score of the borrower who is applying for the loan. When our credit score is high, lenders are more likely to charge less because they don’t consider you to be a risky borrower.
You see, these lenders have to make their money back somehow when they allow borrowers to take out loans. Interest rates help ensure that they do, but when you’ve proven that you repay your debts, the rates will be lower for you because lenders aren’t as worried that you won’t pay them back in full.
Alas, this does mean that if you have a lower score, you’re subject to much higher rates. It can make finding a loan with a low interest impossible, or at least it may feel that way. Even if we are using external comparison services, it’s not a guarantee that you’ll end up with exactly what you were hoping for.
Key Takeaways
At the risk of preaching to the choir, it’s really important only to borrow money and/or take out loans when you’re confident that you can repay them in full without putting too much strain on your wallet. This is easy to say but harder to put into practice.
Just be sure to include any interest that you’ll be charged in your budget calculations, or you could be in for a nasty surprise. That’s a critical part of the whole “not putting a strain on your wallet” thing – if you can’t afford the interest, you can’t really afford the credit agreement.
Additionally, be wary of offers that seem too good to be true. If you are being told that there’s zero interest rate, except in the case of credit cards, where there are often sign-on bonuses, or you won’t be charged as long as you make repayments on time, ask yourself why.
