How to get the best business loan rates
Written by: brittanybritney
It’s worth comparing loans – not just when you need to finance an urgent purchase or make an important investment. Even after you have taken out a cheap loan, you should regularly compare the current conditions of different banks. If interest rates have dropped in the meantime, a rescheduling at the right time can save a lot of money.
How to get the best business loan rates
Although banks basically always assess their creditworthiness according to similar criteria, they can make very different decisions on a case-by-case basis. So it can happen that customers get a loan from one bank for a specific financing request and not another from another. In the case of credit-based interest, the interest rates offered may also differ significantly. Therefore, it makes sense to always make the non-binding loan request with several banks.
If you make a credit inquiry to a specific institution from the credit comparison, further providers will be determined on the basis of your information, which may offer even better conditions for you personally. Of course, this all happens free of charge, neutral in terms of trade and completely non-binding.
6 tips for your successful borrowing and getting the best business loan rates
1. Pay attention to the effective interest rate
When comparing different loan offers, consumers should pay attention to the APR. Banks must include in this interest rate all costs associated with the completion of a loan. The effective interest rate is therefore the key figure that shows all actual costs that are incurred when the loan is taken up by the customer. Excluded from this is only the voluntary residual debt insurance.
If the offer displayed is a loan with credit-rating-dependent interest, the customer is shown the minimum and maximum interest rates in the credit comparison. The loan interest due will vary with these loan offers, depending on the individual creditworthiness of the borrower within that interest margin. In order to compare the conditions of these offers, you can orient yourself at the so-called two-thirds interest. This is the highest interest rate that at least two thirds of all customers pay for a corresponding loan.
2. Choose correct monthly rate
If you want to take out a loan, you should first think about how much money you can spend every month to repay the loan. It is helpful to create a household bill that compares the regular monthly income with the expenditure.
The amount remaining after all expenses at the end of the month can be used to pay off the loan. At this point, you should also schedule a small buffer for unexpected expenses. The rate is then calculated correctly if you can easily transfer money to the bank each month – but no longer need to repay it as necessary. Borrowers can even save money by choosing the right repayment installment. If you have to use your current account’s credit line regularly to cover the monthly expenses due to high monthly payments, this can be really costly due to high interest on disbursements. Conversely, if you set your monthly rate too low, you will pay back your loan over an unnecessarily long period of time. The longer term means more interest on the loan – making the loan more expensive.
3. Specify credit usage
In addition to the desired loan amount and the monthly repayment rate, the credit usage can also be specified in the credit comparison. This makes sense, because for some uses, banks offer special loans at particularly favorable terms. Only if you select in the first step in the search mask of the credit comparison, the desired purpose, such as “new vehicle” or “rescheduling”, you can directly see the appropriate and affordable offers for your individual financing request.
Special loans , such as a car loan for the purchase of a new or used car or motorcycle, are awarded with a so-called earmarking. Although consumers must fully use the borrowed amount in such a case for the stated purpose, but enjoy a major advantage: A security deposited with the bank, such as the car letter and the car ownership transfer, reduces the risk of default for the credit institution. For this, the special loans are usually given at lower lending rates than loans for free use.
4. Second borrower to accept
A loan does not have to be requested by one person alone. Often it is even advisable to include one more borrower in the loan application in addition to the main applicant. A second borrower can increase the likelihood that the bank will approve the loan.
Many banks are lending to so-called credit-based interest rates. In this case, the creditworthiness, ie the economic and personal creditworthiness of the borrower, determines the amount of the loan interest due. Since both borrowers have higher revenues together, this can have a positive impact on credit quality and thus result in the bank awarding the loan on better terms. However, these benefits usually only arise when the second applicant receives a regular income. If a loan is taken out jointly by two persons, both borrowers are equally liable for the loan with the attachable part of their income in the event of a default.
5. Use special repayment and save interest
If you generate additional income during the term of the loan, for example in the form of tax refunds, holiday and Christmas bonuses or sales proceeds, you can always use them to repay part of the loan early. Such special repayment thus offers an excellent opportunity to save on loan interest. Because banks avoid interest income in this way, early repayments are sometimes associated with additional costs.
Therefore, special repayments are worthwhile especially if they are possible for free. Whether and to what extent you can make free special repayments will be governed by the terms of the contract. Therefore, you should always include this point in your consideration when making a loan. You may be able to save a lot of money with it.
6. Remaining debt insurance: check requirements exactly
For some loans, a so-called residual debt insurance is also offered, also called installment insurance or residual credit insurance. It is a voluntary insurance that can take over the repayment installments for the loan in case of unemployment, incapacity or sudden death. However, this also incurs additional costs.
In advance, you should therefore weigh whether this protection is really necessary. For example, an existing endowment or old-age pension insurance can also be used for this purpose. As a rule, civil servants do not need any residual debt insurance because they are already adequately covered by their employment. If you no longer need additional insurance coverage, then you will find out in the online application. If you opt for a residual debt insurance, it is important to check exactly which cases are covered by the insurance.