If you are looking to get a loan, make sure that you are able to qualify for a low rate when you borrow. Whether you are looking to buy a new home, car or personal loan, the lower the rate the less you pay in interest to borrow those funds. And since interest can make up a huge part of the payments over the life of the loan, knowing the best ways to get low rate loans is very important.

When you start to shop for a low rate loan, you need to talk with different lenders to see what options you have. Talk with banks, credit unions and local financial institutions to compare the different programs that they have. Once you know which lenders seem to have the best and lowest rates available, you can begin to start the loan process.

The most important step is to make sure that you are a strong borrower from the bank’s perspective. One of the first things that they look at is your credit score. Having a good track record on your credit report makes banks more comfortable with lending additional funds to you. Consistent payments over the years and no defaults or late payments are all important. If there are any negative remarks or issues on your report, try to get them cleared up before applying for a loan. And if anything remains make sure that you have an explanation as to what had happened.

Once a lender understands what income you have to pay for the loan payments, they will then look what is called your debt ratio. There are two parts to that. First they look at how much credit you have available to you compared to how much you have used. The lower the percentage the better in their eyes. They then look at how much your debt payments and expenses are with this new loan. And they take that total dollar amount and divide it by your monthly income. Again, the lower the percentage the better you are as a borrower. For many types of loans the ratios need to be less than 40%. Different loans and banks have different criteria.

If you have met all of the above criteria, you are likely to qualify for some of the best rates available. And that is important in terms of what your payments will be. The difference between low rate loans and higher rates can be as much as 4 – 8% based on the type of loan that you are looking to get. And over the terms of the loan that can add up to thousands for car purchases if not tens of thousands for a home loan.

Being a smart borrower means looking for low rate loans that meet your needs. By getting an affordable loan you can make sure that you do not pay more interest than you need to when borrowing. And that can only help your long term financial picture.