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If you’re shopping around for a personal loan, you may have noticed that some lenders advertise their loans with interest rate ranges rather than a set interest rate. This means that if you apply and get approved for a personal loan, you’ll receive a rate somewhere in that range.
So, why do lenders use interest rate ranges and how can you qualify for the lowest possible rate? Let’s take a closer look.
A personal loan interest rate range sets out the minimum and maximum rates you could get on a loan from a specific lender.
For example, if Lender X advertises a personal loan interest rate range of 7.5% to 20.15%, if you apply and are approved for a personal loan from this lender, the interest rate that applies to your loan could be anywhere within the range quoted.
However, the rate you get will be determined by a number of factors including your credit score, your overall financial situation and the loan repayment terms.
No. While some lenders use interest rate ranges, others have a set rate. If a loan is promoted with a set rate, everyone who applies and is approved for that loan will get the rate quoted.
Just like loans with interest rate ranges, personal loans with set rates are clearly advertised as such. This allows you to accurately compare loans with the same type of interest rate structure.
There are a number of reasons why some lenders offer interest rate ranges for their personal loans, such as:
The difference between the minimum and maximum figures in an interest rate range can be quite large, so how does the lender determine the exact rate that will apply to you? Well, there are a number of factors that affect how your rate is calculated, and the process will vary depending on the lender you choose.
Some lenders determine your rate based on your credit score or credit history, while others calculate rates according to your risk profile. This means a lender may consider the following factors when deciding which rate in their personal loan interest rate range will be right for you:
If you apply for a personal loan advertised with an interest rate range, you won’t know for certain what rate you will receive. This can be frustrating for borrowers who prefer the peace of mind that comes with certainty, but there are a few simple steps you can take to get a rough idea of the rate you’ll be given.
Checking your credit score is a great place to start, as a good credit score will help you receive a better rate. By taking steps to improve your score, such as consolidating debt and disputing incorrect listings on your credit file, you could soon be able to access a lower interest rate.
It’s also important to read the fine print for more information on how each lender calculates their rates. Once you know the process involved and the factors to be considered, you’ll be able to formulate a clearer picture of the rate you may receive.
Finally, many peer-to-peer lenders can give you an interest rate estimate for your desired personal loan, and you can apply for an estimate without affecting your credit score. This is a very useful tool to help you figure out where you sit on the lender’s personal loan interest rate range.
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