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Lowest Loan Rates - Securing the Lowest Loan Rates Possible

credit score prime collateral

With growing access to credit counseling and information, some consumers are finally winning at the great American lending game. Meanwhile, others are refining their credit scores, dreaming of better interest rates and the day when their money starts working for them instead of the other way around. From either perspective, there is an ultimate goal: find the lowest loan rates possible.

Called prime rates, these loan rates are the best of the best, lended to only the most creditworthy individuals.

Loan rates are determined by three complex variables: credit history, collateral, and location. Of these three, location is often the factor over which borrowers have the least control—rare is the loan-seeker who has chosen their house based on the state that can provide them with the lowest APY. Credit history and collateral, however, are well within the power of a consumer to control.

Collateral is necessary for a good loan, which is one reason that home equity loans provide some of the lowest loan rates available. For many consumers, their home is their single most expensive possession. The equity on a home—that is, the amount of debt for a home which has been paid—can be treated as a tangible asset when telling lenders what you can offer them if you fail to make payments.

More important than location and collateral, credit history determines the amount of confidence which lenders feel toward a potential borrower. This confidence translates into better interest rates.

Credit score—the official guestimation of credit history—is the most easily tracked variable, and it takes into account several aspects of credit history. Having a lot of money does not immediately translate into a high credit score—the score is determined based on how likely a borrower is to pay back money they have borrowed.

Five factors determine credit score:

  • Payment History: Steady, punctual payments have the most significant impact on credit score.

  • Credit Age: Keeping accounts open for a long time positively effects credit score.

  • Recent Credit: Counter to credit age, new credit accounts lower credit scores. Additionally, frequent credit checks from would-be lenders will also lower credit score.

  • Types of Credit Used: A diverse portfolio of installments, mortgages, and other types of credit demonstrate financial expertise to lenders.

  • Debt: Though it is good to always have some debt, lenders will hesitate before lending to someone whose debts grossly overshadow their income.

Armed with collateral and an excellent credit score, a borrower can start looking for a prime rate loan with confidence.

Prime rates are in perpetual flux. Ten years ago, the prime rate was about 8.5%; today, it is closer to 3.5%. Historically, prime rates have mostly gone down over time, though for the past few years they have stayed fairly close to the 3-5% range.

For both borrowers with excellent credit and those trying to envision what could be possible with such a financial asset, securing the lowest loan rates is a worthwhile goal in the building of a mature, lifelong financial portfolio. The capital generated by such a loan can be used to consolidate existing debts or to finance personal investments, both of which can equal significant long-term gains.

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