Qualifying for the Best Loan Rate

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The best loan rate is not reserved for everyone, but rather for those who have outstanding credit and a low debt to income ratio. That doesn’t mean that no one receives the lowest rate; however, it does mean that only a select few are chosen for this privilege. In order to find out the rate for which you quality, you need to know how this determination is made.

Credit history

One of the first factors the lender is going to consider when determining the best loan rate he can offer a potential borrower is his or her credit history. This is probably the single most important factor that determines the interest rate a borrower will pay on a loan. That doesn’t mean that only the credit history will determine the interest rate, but it will carry more weight that the rest of the factors.

Credit history holds a great deal of weight because this factor is used initially to determine the risk factors involved in granting a loan to an individual borrower.

Employment history

Another factor that is used to determine an applicant’s risk factor in granting a loan is employment history. If you have a tendency to go from one job to the other for reasons other than layoff due to lack of work or staff reduction, you are likely to fall into the category of being a risky borrower. As such, the best loan rate that is available to you will probably not be the lowest rate that is available for the type of loan you seek.

Of course, if you have a long and consistent good credit history, this will not have as much of a negative impact as someone who has only recently begun building a credit history.

Banking experience

A lender also looks at your experience with maintaining a checking and savings account. They are not looking as much at how much you have in there as they are assuring that you only spend what you have and do not have a history of overdrafts. On the other hand, failing to have any banking experience is viewed negatively by many lenders. This shows a lack of financial stability and will affect the final determination of the best loan rate.

Debt to income ratio

Another factor that has a large impact on the status of your loan application is how much debt you already have in relation to your income. In fact, you can have an excellent credit history, have the same job for twenty years, the same bank account since you left school, and still be denied a loan because of your debt to income ratio.

This factor is removed completely from the best loan rate quotient; if you have too many debts, the loan will not be granted, and nothing is going to change that unless you can substantiate some additional income that changes the ratio.

The only time this factor has less bearing is if you are applying for a consolidation loan because the lender is aware you are going to be eliminating some of the debts with the loan proceeds.

John Bowles writes general finance and loan articles for the UK Loans Only website at http://www.ukloansonly.co.uk

November 30, 2008