Five Ways to Lower Your Loan Interest Rate

Getting a lower interest rate on a loan is a good way to save on the costs of borrowing. Unfortunately, getting a lower interest rate is not as easy as simply calling your lender and asking for one. There are several good ways to get a lower interest rate, however. Try these five tips to save money on your interest costs every month.

1. Refinance – Look at the loans you currently have and call your lenders. Ask to speak to someone about refinancing. Often, banks will lower your interest rate if you have a good credit score so that you do not take your business to another bank. If your lenders refuse to lower your interest rate, call some other lenders and ask about your refinancing options with them. While there may be some extra paperwork to fill out, you’ll be surprised at how much you can save.

Bear in mind that there are often maximum loan terms to consider. For instance, a UK bank like Clydesdale might offer a maximum loan term of 7 years. Now, this could be a benefit in some ways – you won’t be paying it back forever. It could also mean that your monthly repayments are too high, because of the shorter loan term.

2. Use balance transfers – Many credit cards and personal loan accounts allow you to transfer the balance you have with other credit cards or loans to their account. If you have a card with a low interest rate and enough available balance to cover a loan or other credit card with a higher interest rate, transfer the balance form the higher card to the lower card. Of course, be sure to think about the fees involved with the transaction. For example, if a card has a three percent balance transfer fee, make sure that the card you are transferring the balance from has an interest rate that is at least three percent higher than the lower card.

3. Look for zero interest loan deals – Many new banks will offer zero percent loans or credit cards as a way to attract new business. Take advantage of these deals by signing up, then either transferring the balances from your high interest credit cards or using the cash they offer to pay off high interest debt. Again, be careful to pay attention to any fees these loans come with, and pay especially close attention to the period of time that the loan is allowed to be interest-free for. Typically these offers have interest rates that jump up dramatically, so make sure that you can pay off the loan in the time allotted.

4. Improve your credit score – If you can’t seem to qualify for any good deals on loans or credit cards, it might be because your credit score is too low. Get a copy of your credit report and review it for any errors that might be dragging your score down. After that, start correcting any blemishes on your report. Contact former lenders and make arrangements to pay off old debts in exchange for bad information coming off of your credit report. If all else fails, it might just be necessary to wait a few months to let your score rise naturally.

5. Offer to make a lump sum payment – If you offer a creditor a large sum of money towards the debt, they might be willing to offer you a lower interest rate. In the case of secured loans (such as a car loan or a mortgage), a lender has a lot less risk by loaning money to someone who has a lot of their own capital tied up in the asset. In other words, someone who almost has their car paid off is a lot less likely to let it go into default than someone who owes more on the car than it is worth. Because of this, some lenders are willing to reduce interest rates if a person is willing to pay off a significant part of the loan.

Guest blogger Sara Rosemont is a finance specialist working in the UK.

photo credit: ralphunden via photopin cc

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