How to get the best deal now on every type of loan

The ongoing credit crisis has made it more difficult to obtain loans, including mortgages, home-equity loans and even credit card and student loans.

But that doesn’t mean it’s a bad time to borrow if you qualify.

The Federal Reserve cut its benchmark interest rate from 5.25% to 2% in the past year, which helped lower rates on many types of loans. Also: The federal government’s announcement that it would take over troubled mortgage giants Fannie Mae and Freddie Mac helped push down mortgage rates, at least temporarily.

To find the best deals today…

MORTGAGES

To get a rate anywhere near 6% on a 30-year mortgage with reasonable points and fees, you will need a credit score of at least 680 (preferably 720) out of 850… verifiable, stable income… and enough cash to make a down payment of at least 20%. Your interest rates will climb quickly as your credit score drifts below that level, and many lenders will not be interested in lending to you at all. Less-qualified borrowers should postpone their mortgage applications until requirements loosen up so that they can qualify for better rates.

Best values today: “Conforming” fixed-rate mortgages — those that are within current limits for Fannie and Freddie backing, which range up to $729,750, depending on location. Rates on adjustable-rate mortgages (ARMs) are nearly as high as those on 30-year fixed-rate mortgages at the moment, so it is wise to lock in today’s relatively low fixed rates.

Rates on jumbo mortgages, those that exceed Fannie and Freddie limits, have been about 1.2 to 1.5 percentage points higher than conforming mortgage rates recently. If you require a jumbo mortgage to purchase a property, consider choosing cheaper property instead or make a larger down payment.

Where to shop: Shopping around among banks, credit unions and mortgage brokers has become even more crucial because rates vary greatly. Look at Web sites that compare mortgage rates, including my site, Bankrate.com.

Compare all loan costs, not just interest rates, before settling on an offer. Some lenders attempt to make loans appear attractive by charging low interest rates, but then tack on excessive fees and points. Recent average rates for conforming loans: 5.99% for a 30-year fixed-rate mortgage and 5.68% for a 15-year fixed-rate mortgage. A 30% down payment can shave one-quarter to one-half percentage point off the rate.

HOME-EQUITY LOANS

Lenders have been cutting back credit limits and canceling some credit lines. But if you have at least a 20% equity stake in your home even after the value of your home has plunged in today’s market, it is possible to obtain a second mortgage with an appealing rate. That means that the total amount of all loans secured by your home, including the home-equity loan or home-equity line of credit (HELOC), may not exceed 80% of the value of the property. If you have a HELOC and may need the money before long, consider drawing on the credit line now and letting the money sit in a bank account until you need it.

Best values today: HELOC interest rates, which are variable, were recently 5.4% (for $30,000 of credit) on average, well below the 7.9% average fixed rate for home-equity loans.

Where to shop: Same as for mortgages (see above).

AUTO LOAN

Vehicle loans recently have been at the lowest rates in several years, helped by special financing offers from struggling auto manufacturers. Only car buyers with credit scores above 650 will be able to obtain the best rates, however. If you have poor credit, this is not a good time to finance a car.

If the dealer is offering a 0% rate, you will need a credit score of at least 680, and possibly 700, plus a 10% down payment in many cases. Determine your credit score in advance on www.myfico.com, and if it is too low, consider trying to improve it before you get a car loan.

Best values today: If you can afford the 36-month loan’s higher monthly payments, lean toward a 36-month loan rather than a longer period. That way, you’ll end up paying much less in total interest payments.

Where to shop: Local credit unions. Interest rates on new car loans often are more than half a percentage point lower at credit unions than at other types of lenders. Also, dealerships have more incentive to offer their best rates when they know that they must compete with another offer.

Examples of recent rates: 6.58% for a five-year new car loan… 6.8% for a three-year new car loan… and 7.15% for a three-year used car loan.

CREDIT CARD LOANS

Credit card interest rates have fallen sharply in the past year, although credit card issuers such as American Express have slashed credit limits. If your credit score is above 620 and you have a card currently charging more than 15%, you should be able to obtain a lower rate for both balance transfers and new purchases.

Best values today: If you carry a significant balance and pay a high rate, switch to a card with low rates on balance transfers. This could include cards with ultra-low six- or 12-month introductory “teaser” rates, particularly if you expect to pay down your credit card debt in the near future. If you do not currently carry a balance on your cards but sometimes do, select a card with a low interest rate on new purchases. If you never carry a balance on your credit cards, select a rewards card or cash-back card.

Where to shop: Use Web sites that compare credit card features.

STUDENT LOANS

It has become much more difficult to obtain student loans from private lenders in the past year, particularly if your credit score is below 650.

On the bright side, many government student loan programs recently have become more flexible and more appealing, with lower interest rates and higher borrowing limits in some cases. Take full advantage of these programs before searching for private student loans…

  • Stafford loans provide undergraduates with up to $7,500 per year. Rates are capped at 6.8% with no credit check required.
  • Perkins loans have rates capped at 5%. They are available only to students in extreme financial need and cannot exceed $4,000 per year.
  • PLUS loans allow the parents of undergraduates to borrow up to the full cost of tuition with fixed interest rates capped at 8.5%. A credit check is required, but this credit check is more forgiving than those used by private lenders. See the US Department of Education Web site for more details (www.studentaid.ed.gov).

Where to shop: Fill out a Free Application for Federal Student Aid (FAFSA) form (www.fafsa.ed.gov). Discuss grant programs and federal student loan programs with the college’s financial aid office.