If you are thinking about applying for a loan, or you want to consolidate your several debts and combine them into a single loan, you should definitely scout for lower interest rates. With a lower interest rate, not only will you spend less on the interest itself, but also on the total amount of money that you owe.
Here are some ways you can save on interest rates:
# 1 – Consider credit unions and smaller banks
Banks are the top financial institutions that will come to your mind when you need to apply for a loan. However, you might be better off with smaller banks and credit unions, which usually offer lower interest rates.
If you decide to go for a credit union, you will need to meet certain requirements. For example, you need to be a member of the credit union, and you need to belong to a certain working group or reside in a certain location.
Be sure to shop around extensively to find out which financial institution will provide you with the most competitive interest rates.
# 2 – Automate payment
Did you know that if you sign up for automatic payments, you are qualified to get lower interest rates on your loan? This is true for mortgages, auto loans and personal loans. Banks and other financial institutions offer this perk because they like to encourage their borrowers to pay on time. And borrowers will not miss any payment as long as their payments are automated.
Check with your bank if you can qualify for such feature. Some student loans offer this benefit. However, this is not applicable for credit cards debts.
# 3 – Open a bank account with the lender
Here’s another way to save up on interest rates that many borrowers are not aware of: you can get lower interest rates if you open up an account with the bank you have a loan with. Aside from enjoying lower interest rates, this also spells convenience. It’s a lot easier to have your account in one bank than in several ones. Now if you don’t want to abandon your current bank account, you can still open a new one where you have a loan, and simply transfer to this new bank account your monthly loan payment.
# 4 – Consolidate your loan
If you have several high interest rate loans, what you can do is to consolidate these into a single loan. Just make sure that the interest rate of the new loan is lower than the previous ones. Take the time to shop around so you can get the most competitive rates.
This route will save you a great deal of money in the long run. Not only that, it makes it easier for you to manage loan payment as you now only have to make one.
# 5 – Improve your credit score
One of the most effective ways to get lower interest rates is to have a high credit score. As you know, your credit score is the first thing that lenders look at before processing your loan application. The lender will use this as gauge on whether you can repay the loan or not. The higher your credit score is, the more likely you are to pay the loan on time.
However, if you have low credit score, the lender will see this as a sign of risk, as it is more likely that you will default on the payment. And to offset that risk, the lender will charge higher interest rates.
This is why, it’s best to work to improve your credit score. It’s better to do this before you apply for a loan. To improve your credit score, you have to be current with all your payments. You also need to lower your debt-to-income ratio. Increase your income by looking for a part-time job or side gig. Try your best to reduce your expenses. All these can help you get rid of your debts more quickly, and increase your credit score in no time.
These strategies will definitely help you save on the cost of interest rates. Don’t let yourself be burdened by an overly expensive loan. It’s supposed to make your life easier, not the other way around.