Loans can help us achieve big goals, like buying a car or going to college. But did you know that the interest rate on your loan can affect how much money you pay back? A lower interest rate means you pay less money over time. So, how can you get a lower loan rate? Here are some simple tips to help you save money.
1. Check Your Credit Score and Credit Reports
We know this is obvious but it needs to be said. Make sure that you are more familiar with your credit than any potential lender could be. This means checking your credit score and your credit reports (all three) because your lender will be looking at more than just your score. You may feel like you have a decent credit score, and then be surprised by what rate your lender quotes you because there are too many negative items in your credit report.
If you’ve never downloaded copies of your credit reports before, you can do so for free at the only official website, AnnualCreditReport.com
If you want a more broken out view of your credit and explanations for what everything means, you can also get a free Credit Report Card from us.Â
2. Really Spend Time Shopping Around
Don’t settle for the first loan offer you get. Don’t settle for the second. The difference of half a percent can mean thousands of dollars, so really take your time and do your research. Check the rates offered by your own bank, credit unions, digital lenders, mortgage brokers – anyone – to see who has the lowest rates.
Just remember to compare not only the interest rates but also any fees or charges that might be included.
3. Consider a Co-Signer
If you’re having trouble getting approved for a loan or getting a low interest rate on your own, consider asking someone with good credit to co-sign the loan with you. Having a co-signer with a strong credit history can help you qualify for a lower interest rate.
4. Save Up For a Big Down Payment
Putting more money down upfront can help you secure a lower interest rate on your loan. It shows lenders that you’re serious about paying back the money you borrow. Plus, a larger down payment means you’ll have a smaller loan amount, which can also lead to lower monthly payments and less interest paid over time.
5. Choose a Shorter Loan Term
The length of your loan term can affect your interest rate. Generally, shorter loan terms come with lower interest rates because the lender takes on less risk. While a shorter loan term means higher monthly payments, it also means you’ll pay less in interest over the life of the loan. So if you can afford it, choosing a shorter loan term can help you save money in the long run.
6. Improve Your Debt-to-Income Ratio
Lenders also consider your debt-to-income ratio when deciding your loan rate. This is the amount of money you owe each month compared to the amount of money you make. If you have a high debt-to-income ratio, lenders might see you as a higher risk borrower and charge you a higher interest rate. Paying down debt or increasing your income can help improve your debt-to-income ratio and qualify you for a lower rate.
7. Ask About Discounts
Some lenders offer discounts on loan rates for things like setting up automatic payments or having a checking account with them. It doesn’t hurt to ask if there are any discounts or special offers available when you apply for a loan. Even a small discount can add up to big savings over time.
8. Use Mortgage Points
Mortgage points are a way to lower your interest rate by paying extra money upfront to your lender when you close on your mortgage. Each point typically costs 1% of the total amount of your loan.
So, let’s say you’re getting a $200,000 mortgage, and the lender offers you the option to buy one mortgage point for $2,000. If you buy one point, you’d pay an extra $2,000 upfront, but your lender might lower your interest rate by, let’s say, 0.25%.
If you plan to stay in your house for a long time, buying mortgage points might be a good idea because you could end up saving more money on your monthly mortgage payments. But remember, it’s not always the right choice for everyone. Think about how long you plan to stay in the house and whether you’ll actually save enough money in the long run to make up for the extra cost upfront.
By following these tips, you can increase your chances of getting a lower loan rate and save money on interest. Remember, every little bit counts when it comes to your finances, so take the time to explore your options and find the best loan rate for you. With a little effort, you can be on your way to achieving your goals while keeping more money in your pocket!
