How to Get Interest Rates Reduced on Loans

Many people who have mortgages and other types of loans simply take the interest rate that is offered to them by the lender. Most of these people are unaware that there are a couple of ways that they can get cheaper interest rates. Consumers who are wondering how to get interest rates reduced will be pleased to hear that it is a simple process.

The first thing that people who are in the market for a loan should do is shop around. One of the biggest mistakes that people make when it comes to lending, is to stick with the same provider they have used for the majority of their lives. The lending business is competitive and this means both banks and finance companies are prepared to offer good interest rates to their customer.

Generally a bank will be able to give a customer a cheaper interest rate than a finance company. This is because banks have a lot more security to back them up if their customers do not pay back their loans. Also banks are very conservative about who they lend their money to. If a customer does not have a regular income and a clean credit history, a bank will not touch them. This leaves some customers with no option but to turn to a finance company. Finance companies will then charge a higher interest rate because the customer is deemed to be high risk.

Once the customer has shopped around and has a list of interest rates that various companies are prepared to offer they should get back on the phone. Consumers should now tell the lender that another company has offered them a cheaper rate and wait to see if the lender can give them a discount. Many people are unaware that lenders have a degree of flexibility when it comes to interest rates. While they will not want to drop the rate, they will be prepared to do it in order to snag a customer. Lastly those with very bad credit looking for products such as credit cards for people with bad credit, will have to put up with high interest rates until they rebuild their credit history.

Low Interest Rate Loans

Every tenth of a percentage point on a loan makes a big difference on the amount of interest you pay over the life of the loan. It’s worth the extra time and effort to dig until you can push that rate down as low as possible. Finding low interest rate loans can be hard work, but it’s work that pays pretty darn well. You have to stop thinking about just the avoidance of interest payments, and start thinking about the purchasing power and investing power of the money that stays in your pocket when you manage to find that lower rate. Here’s an illustration:

Let’s say I’m looking for a low interest rate mortgage loan. I need to borrow $250,000 on a 30 year fixed rate loan. My first opportunity is to get the loan at 6.5%. Those terms give me a mortgage payment of $1,580.17. By the time I pay the house off I will have sent the lender right around $319,000 in interest payments. We’ve all seen those numbers a hundred times, but it never ceases to amaze me.

Anyway, let’s say that instead of a 6.5% interest rate I manage to get a 6.25% rate. Now my payment is $1,529.39. So it saves me about $40 per month (lets my husband and I go out to dinner one extra time per month – not bad), but the big payoff is in the interest saved over the life of the loan. By the end of the term I will have paid around $304,000 in interest. $15,000 is a healthy chunk of money, and that’s why it always pays to look for a lower interest rate.

Okay, since we’re on the subject, we might as well talk about how to save even more money on interest on your home loan or any other loan you borrow. Add $100 per month to your payment. You’ll save $70,000 in interest and pay the house off in 25 years instead of 30. I know that’s not completely related to this article, but it’s always worth mentioning that a true ‘low interest loan’ is one that gets paid off early by a disciplined borrower.

Low Interest Car Loans

In a perfect world we would all pay cash for every car we bought. No financing, no payment, no interest, no additional debt. It’s not a perfect world though, is it? No, almost no one has $5,000 to $25,000 to buy a car they can count on, so they have to finance. The best advice I can offer (as obvious as it seems) is to look for low interest car loans.

First of all, there’s something you need to acknowledge before you ever go car shopping, test drive one you like, and fill out a loan application – car loans with low interest are reserved for people with good credit. I know that’s not what you want to hear, and it really can complicate (or severely delay) the purchase of your next ‘ride,’ but it’s a fact you can’t get around. If you want to get a really good rate on your car loan you’ll need to have a credit score in the neighborhood of 700 to 750.

And not only that. All types of lenders are tightening their qualification processes, which means your good credit alone won’t be enough. They’re also going to look carefully at your overall debt profile and decide whether another payment will be too much for your given level of income. If you can’t pass their ratios, it’s going to be no loan for you. And what are those ratios? Any conservative lender will not want your new payment to put your monthly payment to monthly income ratio higher than about 25%. Really aggressive lenders will still only be comfortable with about 33% payments to income ratio.

So here’s a plan for you to be ready to buy the car you want, and still get a good low rate car loan.

1. Get a free copy of your credit report and examine it carefully for two things: blemishes and mistakes. You need to do everything you can to clean up that report if you want a lender to give you a good interest rate. If there are mistakes on your credit report, write a letter to the credit agencies explaining the error.

2. Elimiate other debt. Set up a more strict montly budget for yourself, and make an aggressive plan to pay off credit cards, store credit, and other outstanding balances. Paying off debt will free up money for your new car payment (so your income to payment ratios look better), and it will also improve your credit score. Oh yeah, not to mention that it just feels great to have less debt!

3. Look for ways to increase your income. Ask for a raise, apply for a promotion, or think about starting a small side business. If you could add just an additional $500 per month to your income you’ll have more than enough to make the payment on your new car, and you’ll have the satisfaction of earning more money.

I really hope you’ll follow these steps for the next few months. They’ll make your overall financial situation much stronger, and they’ll make it ten times easier to get a low interest car loan.

Low Interest Student Loans

A college education is already expensive, and it’s getting more costly every day. You could easily spend $10,000 per year for a bachellor’s degree at a school in your home state. I don’t know what the exact statistics are, but I’d be shocked if less than 50% of college grads make it out of school with no education related debt. Low interest student loans are a crucial part of most people’s college experience.

Do you know how to qualify for a low interest rate student loan? Would it surprise you to hear that most education loans come with low rates? I guess that requires a little more explanation.

With student loans you’re first discussion is always going to be about ‘subsidized’ versus ‘unsubsidized.’ A subsidized loan involves the government’s stafford loan program. What happens is you borrow the money you need, and the government takes care of the interest that would normall accrue on that loan. The idea is they don’t want you to be burdened with growing interest balancese while you’re in school and your ability to earn is limited by the fact that you’re in class all day and studying at night. With subsidized loans you’re not going to see any interest accrue until six months after you end your status as a full time student.

On the other hand you have unsubsidized student loans. These do start accruing interest from the day they’re disbursed, which makes them a little more costly. Although they interest does start to accumulate, you still won’t be required to make any payments until you’re six months removed from your ful time student status.

You also have private student loans. Once you’ve borrowed the maximum authorized by your school, you might need to apply with private lenders if your education costs still aren’t covered. These are going to be the highest interest loans you’ll get during school.

Now, what you need to understand as you approach the financing of your education is that the ‘low interest’ doesn’t really come into effect until you go through the loan consolidation process after graduation. Once you leave school, and as the time that your payments will begin nears, you’re going to get massive amounts of mail from consolidation companies who want to combine all your loans into one balance with one payment, at one low interest rate. This is the smartest move you can make.

Going through the consolidation process is going to secure a very low rate for you, making your payments as manageable as possible as you begin your professional life.

Low Interest Loans

One of the oldest personal finance maxims out there is “avoid debt.” One of the other oldest is “if you’re going to take on debt, make sure it’s with low interest loans.”  There are plenty of loans out there that don’t require you to pay double digit interest; you just have to look in the right places and have the right qualifications.

I’ll say this though. I’m afraid there are way too many people out there who have foolishly convinced themselves that they’ll be able to get a low interest loan even if they have terrible credit, no income, and no credit history – all they have to do is keep looking at websites until they find the one that says “Yes – we’ll loan you lots of money even though it would be incredibly stupid for us to do so!”

Just kidding. Well, partly kidding. You just might as well come to terms with the fact that you’re only going to get a loan with low interest if you meet a few very strict criteria:

1. You have to have a couple of years of credit history where you’ve had the opportunity to use credit, and you’ve proved that you can use it wisely.

2. Your actual credit score is over 700.

3. You have an income that far exceeds your monthly expenses and your current monthly debt service.

This is one of the great ironies of debt – those people that would clearly need to borrow the money the least are the ones who can easily get low interest rate loans the most esaily. Those that need to borrow the money the most are the least likely to qualify for the attractive loans. I’m sure there’s some profound life lesson in there.

What kinds of low interest loans are there?

All kinds, actually. Well, almost all kinds. Obviously you have your low interest home loans, low interest auto loans, student loans, etc. One thing I don’t really believe exist are low interest personal loans, although there are plenty of people hoping and dreaming to find them.

The moral of the story is you need to prepare yourself to be the kind of borrower that would qualify for an attractive loan. You need to manage your money and your credit wisely. Borrow no more than you need, make your payments on time, and put the credit agencies on your side. Soon you’ll have lenders beating a path to your door.