Interest Rates

How to find low interest rates

Interest rates are a vital tool of monetary policy. They express the price a person wishing to borrow money from a mainstream financial institution must pay to do so. Typically, interest rates are listed as percentages covering a one-year period. Thus, if you borrowed $10,000 at a 7.5 percent rate of interest, you would owe the lender $10,750 after one year.

Obviously, borrowers seek low interest rates when shopping for personal loans. To give yourself the best chance of finding low interest rates, you need to understand the market forces that affect rates and how to compare the terms offered by various lenders.

Understand the Current Rate of Interest

In the United States, the current rate of interest is set on Wall Street and is known as the "prime rate." Basically, the prime rate is a nationwide average of interest rates. Rates can be cut to encourage consumers to borrow more money, generating more interest and increasing the amount of cash flowing through the economy. Rising interest rates make borrowing more expensive, and they generally reflect a trend towards economic conservatism.

The typical interest rate offered through a financial institution is slightly higher than the prime rate, but still tied directly to it. The prime rate is used as a kind of default interest rate, giving borrowers a ballpark figure to work with when shopping for a loan.

Comparing Interest Rates from Lender to Lender

To get the best interest rate now, in a market saturated with lenders, you've got to do your homework. Interest rates are variable from lender to lender, and if you find money available at a rate lower than prime, you should be wary. There are likely to be other fees, terms and conditions attached to the loan that will cost you the money you're saving on interest.

Finding low interest rates is easiest when you have a tool that allows you to compare the terms offered by a wide selection of lenders. Use an impartial third-party website that allows you to enter your loan criteria and view financial products that offer those criteria. These sites search the Internet for you, returning sortable results that display each lender's interest rate.

Keep in mind that will affect the interest rate a lender will offer you, and that interest rates are generally lower for secured loans than they are for unsecured loans. Bad credit will make it hard for you to get a low rate; conversely, lenders extend their lowest rates to borrowers with flawless credit histories.

Regardless of your credit history or current financial situation, you should shop around before taking out a loan. Lenders can vary significantly in the interest rates and terms they offer.

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