There’s nothing wrong with having to take out a loan. In fact, it can be a great way for entrepreneurs to acquire the money they need to get their business off the ground.

However, people tend to run into problems when they don’t properly budget for paying back the money they borrow. Sometimes, though, it’s not always entirely the borrower’s fault.

No matter how solid their repayment plan is, some people who take out a loan are crippled by sky-high interest rates.

This isn’t only true about large loans, either. Small loans can be as difficult to pay off as bigger loans if the interest rate is high enough.

Luckily, there is plenty that you can do in order to lower your interest rate. Let’s take a look.

Is paying off your small loans becoming too expensive? Use this guide to lower your interest rate.

Borrow for a Shorter Term

When you borrow money for a shorter period, the lender has to spend less time monitoring your payments and making sure you’re on track to repay all of your debt.

The lender will also get their money back (plus interest) earlier. Thus, they may be inclined to offer you a lower interest rate if you sign an agreement to pay back your small loan over six months as opposed to two years.

If you know that you may have difficulty paying off loans, a shorter loan term can help keep the total interest that you incur as low as possible.

Improve Your Credit Score

One of the factors that lenders use to decide the interest rate of a loan is how reliable the borrower seems.

If a potential borrower has a stellar credit score and a solid history of making payments on time, then there is no need to give them a high interest rate.

Conversely, people with low credit scores and spotty repayment history will find themselves with higher rates than their more responsible financial peers.

But, there’s good news! If your credit score is poor or on the lower end of the average range, you can work to improve it before seeking out a loan. This will ensure you pay a smaller total amount than you would otherwise.

It’s still possible to get a loan with bad credit, but it’s unlikely. Even if you do, you’re not going to like the interest rate that comes with it.

Choose a Variable Interest Rate

Most lenders offer borrowers the option to choose between either a fixed interest rate or a variable interest rate. As both names suggest, the titles have to do with whether or not the interest will change during the repayment period.

A fixed rate will remain the same for the entire duration that the borrower repays the loan. But, this type of interest rate tends to be on the higher side.

On the other hand, a fixed interest rate could potentially result in you paying less when all is said and done.

Inflation, supply and demand, and government regulation are all factors that influence standard interest rates.

By doing a bit of research, you’ll be able to determine whether interest rates are going to rise or fall in the near future with a fair bit of accuracy.

If interest rates appear to be on a downward trend, choosing a variable interest rate is the better of the two options because the rate is unlikely to rise throughout the duration of your loan repayment.

Browse Different Lenders

It’s very unlikely that you’ll ever have only one lender to choose from. Similar to dealing with any other professional service, you have the capability to shop around for a lender that’s right for you.

Even if two lenders are in close proximity to each other, the loan terms and interest rates can be drastically different.

Thus, you should always take the time to browse if you feel as though the interest rate a lender offers you will be an issue.

Sometimes, however, you may have to compromise. Lenders who offer lower interest rates may not offer the right small loans options for you. Be wary of this during your search.

Offer Collateral

As previously mentioned, one of the ways lenders determine interest rates is by assessing how much risk they’re taking by giving money to a specific borrower.

If a lender is not confident in your ability to repay the loan during the specified time period, you may want to offer collateral in order to sway their decision.

Collateral could include a wide range of assets that you have, such as your home, your car, or even investments that you have. Should you fail to repay your loan, the lender would have the legal right to take your collateral as a form of payment.

Due to this, you should never offer anything for collateral that you’re not prepared to lose.

If you do choose to put up something vital like a car or house, you need to be absolutely sure you can repay the loan.

Have a Friend or Family Member Cosign

If you’re having trouble managing your small loans due to the interest rates, consider having a friend or loved one cosign the loan agreement with you.

This process is similar to collateral in that it can cause a lender to have more trust in you if they were on the fence about whether or not you would be suitable for a loan.

However, you should understand that failure to repay the loan under the given terms can have detrimental effects on your cosigner. Credit score penalties, late fees, and even wage garnishment are all possible.

For the sake of the other individual and your relationship with them, never have someone cosign a loan (even small loans) if you are not prepared to pay them back in full plus interest.

How to Lower Small Loan Interest Rates

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Even Small Loans Can Be Difficult to Manage

But, reducing your interest rate as much as possible with the above tips will make sure they are easier to handle. And, you’ll keep your family and friends out of trouble, too.

Small loans can sometimes be a necessary part of life, but you should only take them out if you can repay them. Want to learn more about managing your finances? Check out our blog.

If you’re considering taking out a short term loan, you need to find the right lender. Here’s our guide on how to protect yourself and your interests.

Short term loans can really help you get out of a tight spot.

However, it’s vital that you choose the right short term lender. Otherwise, you’ll wind up with an even bigger problem than you began with.

Sifting through all the options may take a bit of time, but it’s definitely worth it. In order to successfully navigate the field and choose the right lender, you should know what to look for and what to avoid.

Are Short Term Loans Safe?

Many people ask themselves whether short term loans are a good idea.

It’s true that there are some horror stories out there, as is the case with any type of lending (just think about people who’ve had negative experiences with even the most respected banks).

But for the most part, short term loans are a safe, highly useful loan solution.

Short term lenders operate under rules and standards established by the law. These rules are made to protect the borrower and ensure you get a fair deal.

Lenders win when they help borrowers. Providing their customers with a positive experience strengthens their reputation and keeps them in business.

So it’s not the case that providers of short term loans are “out to get” borrowers. On the contrary, short term loans make fast cash accessible to people who otherwise not be able to obtain emergency funds from traditional loan sources.

For instance, many people with bad credit qualify for short term loans, even when banks and credit unions reject them.

The reason interest rates for short term loans tend to be slightly higher than with bank personal loans is because of the additional risk these lenders take on. They typically approve borrowers without a credit check and deliver funds within 24 hours.

So, it’s a trade off. Interest that is a bit higher in exchange for flexible requirements and fast financing.

That said, it is important that the lender you select fits all the criteria of legitimacy and trustworthiness.

How to Detect Bad Short Term Loans

Don’t waste your time with scammers.

While most short term loan lenders are good, there are some that want to take advantage of trusting borrowers.

Here’s how to tell if short term loans are a scam.

Make Sure the Lender is Properly Licensed

If someone sets up shop as a payday lender, it’s because their business has been adequately certified and licensed.

If they aren’t, then nothing binds them to comply with the rules that protect the borrower. Doing business with such shady entities could put you and your money at risk.

When you find a company, look them up! The Australian Securities and Investments Commission (ASIC) holds information on the companies that have received the proper certification.

If a given short term lender does not have an Australian Financial Services Licence or an Australian Credit Licence from ASIC, this should be a red flag.

Investigate their Online “Footprints”

The internet has made it possible to gauge the legitimacy of a company by looking at its “social proof.”

Start by googling the lender. What comes up?

Make sure their website looks professional. Their address, phone number, and email should all be listed. Licensing information and terms of services should all be available.

If scam complaints appear, that should be an automatic dealbreaker.

Also look at how much of an online presence they have. Legitimate businesses have Google Places listings with reviews. They’re on Yelp, Angie’s List, and other business directories.

Does the lender you’re researching have a Facebook page with reviews, likes, and regular updates? What about LinkedIn?

Consider all of these questions as you perform your research. What you want is a thorough social profile that and ample evidence that real people have used and are happy with the lender’s service.

Don’t Trust Lenders That Ask for Money in Advance

Real short term lenders don’t ask you to give them money before they lend you money. That’s a common tactic of scammers.

The way professional short term loan providers do it is to simply request bank statements, pay stubs, or other evidence of income they can use to qualify you.

If you’re approved and you accept, the lender hands you the cash and you go on your way. You’re never required to pay anything until the term of your loan is over.

Avoid Short Term Loans with Hidden Fees

A respectable short term lender doesn’t try to play “gotcha” with the fine print.

Before you sign anything, read the terms and conditions of the contract in full. Don’t worry how much time it takes. Be prepared to walk out if necessary.

Keep an eye out for exorbitant interest rates. Find out how much short term lenders are allowed to charge in your locality. Study the industry average to be sure you’re not getting stiffed.

Use Short Term Loans that fit Your Unique Needs

Once you’ve narrowed your pool of options down to the legit lenders, go with the one whose services are tailored to your personal circumstances.

Maybe you want the convenience of online short term loans. With internet-based lenders, you can get approved and have your money deposited without ever having to leave your home.

Pressed for time? Select the service that will give you the cash as soon as you sign.

Maybe you’re currently not employed. But you have a regular income from Social Security. Choose short term loan provider that accept Social Security as a valid form of income.

Conclusion

Finding the right short term loan is an important task. Getting cash fast is important, but it’s also important not to rush into a bad deal.

Doing due diligence on the available lenders will help you find the best terms.

Create a list of options. Look them up to see what experiences past borrowers have had with those lenders.

By sorting out the unlicenced, shady businesses with low social proof, you protect yourself from being scammed.

Then, it’s just a matter of choosing from the offers that best fit your needs.

This process takes some extra time, but you’ll be happy you did it when you’re enjoying the rewards of a quality short term loan.