Five things that move your loan rate more than your credit score

Many people assume their interest rate comes down to a single number: their credit score. The score matters, but lenders look at much more than that when they set your rate. Here are five factors that often make a bigger difference.

1. Security

A loan secured against an asset, such as a car or property, is lower risk for the lender than an unsecured loan. That usually means a lower rate. The age and type of the asset matter too. A new car is typically cheaper to finance than a 15-year-old one.

2. Employment stability

How long you have been in your job, and whether you are full-time, casual or self-employed, affects how lenders see your ability to repay. Being past probation in a permanent role generally helps.

3. Existing debts and credit limits

Lenders look at your total commitments, including the full limits on your credit cards even if you don’t use them. Closing unused cards before applying can improve your borrowing power and sometimes your rate.

4. Your deposit

Putting money down reduces the amount you need to borrow and shows the lender you can save. For car and asset loans, a deposit can sometimes unlock a better rate tier.

5. The lender you choose

Different lenders price the same borrower very differently. This is often the single biggest factor, and it is exactly why comparing across a panel matters.

What you can do before you apply

• Check your credit report for errors (it’s free from the credit reporting bodies).
• Pay down or close cards you don’t need.
• Keep your bank statements tidy for a few months: fewer dishonours and fewer buy-now-pay-later debits.
• Talk to a broker before you apply anywhere, so you only apply where you are likely to be approved.

This article is general information only and does not take into account your objectives, financial situation or needs. Speak to your broker, and your accountant where tax is involved, before making a decision.