When you are taking out a loan, one of the greatest concerns is the interest rate that you have to pay on loan. With the current condition of the economy, banks have increased their lending rates quite a bit, even for the ones who have an impeccable credit record.
Thus if you want to get a low interest on your personal loans, then you have to do quite some amount of background work. Peer-to-peer lending, more commonly known as social lending, gives you a shot at lower interest rate personal loans. The processes you can go through to get personal loans having low interest rate are as follows:
- Find out the source – One of the main reasons why you are charged abysmally high interest rates on unsecured personal loans is because the risk of default is high. If you default on the loan that you are taking, then the entire liability falls on the bank and it is the sole entity bearing the burden of the loss. On the other hand, when it comes to peer-to-peer lending, there are a number of investors who pool together their money and then form various packages to lend them out. This is the reason why they are more commonly known as social lending. Due to diversification of portfolios, risk is mitigated. Thus in this process the money you will borrow will come from a number of people put together, so the amount they are individually lending is small and as a result the risk they are undertaking is also small. This is the main reason why the interest rate in these kinds of loans is lower.
- Prepare the information required – When you are applying for a personal loan from a lending network, you are required to fully furnish them about all your background information. The most common queries would be the reason you require the loan, in what use you will put the money to and what are the ways and means you have to pay back the debt.
- Provide necessary paperwork – Along with information regarding the loan, you will also be required to provide personal financial information and paper works. The most important is your credit history. You should get a copy of your credit report from any of the three major credit bureaus and look them up for any glitches. If you have wrong information or defaults which have been cleared then immediately inform the bureau and get it corrected on your credit report. This will increase your credit score. The higher score you have, the better creditworthiness you have. This means you will get the loan at lower interest rate. You are also required to find out the number of delinquencies you have had in the last two years. Apart from this, you are required to make a cash flow statement in which you have to show explicitly the amount and sources of income you have per month and the expenses that you incur per month.
When you are ready with all these, then you can apply for the loan. You should keep in mind that applying for personal loans online can get you a much lower interest than your current bank. However, it is very important that you seek advice from a finance consultant on loans and personal finance before you apply for a personal loan online. You should also do a background check on different consumer forums about the social lending network from which you are planning to borrow money about their credibility and customer service.