3 Big Factors Affecting Your Loan Rates and How to Improve Them

Loan RatesWhen looking for loans, your main goal will perhaps be to get approved for them. This is important simply because to get a loan, you need to be approved. However, there are other factors to consider that can be just as if not more important. One of these factors is the loan rate that lenders will charge you.

Sure, you may be approved for a loan, but if the rates are terrible for you, you are probably better off looking somewhere else. Putting the effort to find reasonable rates and be approved for them is a brilliant idea, as it will help you save as much money as possible.

That said, few factors affect your rate, and knowing how to control them will allow you to access the best possible rates:

1. Credit Score

One of the most significant factors that lenders will look at when deciding whether to lend to you and what rates to charge would be your credit score. Your credit score will be a three-digit score that can fall between 300 to 850, where a number of around 580 to 669 are considered fair, and 670 and above are considered good.

When it comes to your loan rates, the higher your credit score, the lower your loan rates. This is because a good score proves that you are reliable in paying back the loan, and the lender doesn’t need to offset any risk with higher rates. To improve rates, you can either spend the time applying for small loans and paying them off quickly or ask a cosigner with a better credit score to sign with you!

2. Borrowing Amount

The borrowing amount, or the amount you want to take out as a loan, will also affect the rates at which you pay. This is because the larger the loan, the risker it’ll be for the lenders, and for two reasons. First, if you take out a large loan and cannot pay it, the lenders lose more money. Second, the larger the loan, the harder it is for you to pay it off.

All these factors are added risks to the lender’s side, and the increased rates are to try and offset the risks. There’s not much you can do about this other than borrow a lower amount or pay a higher rate. However, this does mean that you should only try to borrow what you need and no more!

3. Debt-To-Income Ratio

Another factor that plays a significant role in the rates you receive is the debt-to-income ratio. Commonly referred to as the DTI ratio, this ratio pits how much you make against the outstanding debt you have. The higher the ratio, the more debt you have compared to your income. As a result, the higher the ratio, the increased loan rates you will face, not to mention the lower the chances of getting approved.

A good DTI to aim for should be at most 36%, where the lower, the better. Note that some lenders may still be alright with even a 50% DTI ratio. If you have ongoing debts right now that push the percentage higher than 36%, go ahead and pay them off as soon as you can.


If you find that your rates are unreasonable or too high for your liking, spend the time to address the above factors. Things like low credit scores, high debt-to-income ratios, and more can be fixed, meaning they don’t forever have to be there and affect your loan rates. However, understand that it will take time to resolve any issues you may be facing, but it is worth it.

That being said, regardless if you were to borrow now or first spend the time to improve your financial standing, always take time to compare different loan rates from different lenders. You never know what rate the next lender will give you, and you might discover the perfect loan from a different lender.

Central Loan & Finance Memphis offers clients fair, honest, and straightforward loans to meet financial requirements in times of need. If you are looking for personal loans in Memphis, apply with us today!


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