When you apply for a personal loan, you might be receiving offers from lenders at a higher interest rate. And since you are looking to get a loan at lower rates, this can be disappointing. But there are certain tactics that you can use to get loans at a lower interest rate. And below, we look at a few such strategies.
Remove All Collection Accounts
Some people may have a collection account on their credit report. These are the unpaid debts which a collection agency will be tasked with to recover from you. And having such collection accounts can easily lower your credit score significantly since it will indicate your inability to repay a loan. As a consequence, you will also be charged a higher interest rate when you apply for a loan. This is why it is essential that you get these collection accounts removed from the report. For this, talk with the collection agency and offer to pay the outstanding debt in exchange for agreeing to remove the accounts.
Use Your History With The Bank
If you have been a regular customer of a bank and have a long history with them, then you can talk with the manager and negotiate a lower interest rate. And in case you are an active client of the bank, the chances of getting the interest rate lowered are very high. Now, keep in mind that the difference in interest rates will largely depend on how valuable you are to them. If they see you as a valuable enough client, you can get a pretty good deal by using your history with them.
Use A Different Person’s Credit History
A good way to get a lower interest rate is by using another person’s credit history. More often than not, a higher interest rate is charged when you have a weak credit score. So, if you have a family member who has an excellent credit score, you can request them to add you as an authorized user of the credit card. Once done, all the excellent payment history of the family member will be added to your credit report which, in turn, will boost your credit score. And once you get the loan at a lower rate, your family member can remove you as an authorized member.
Adjustable Rate Mortgage
If you are applying for a mortgage to buy a home, you should also look into getting an Adjustable Rate Mortgage (ARM). Check out the 5/1 ARM loan in which the interest rate will be lower for the first five years and will increase with each additional year of the loan. This is ideal when you have a good idea of how long you are going to be living in the home. In contrast, if you are not too clear about this, then you are better off avoiding an ARM loan.
Bargain With Multiple Lenders
Always meet up with multiple lenders and bargain with each and every one of them. Compare personal loans, prepare a list of pros and cons of each loan, and meet up with the lenders. Talk to a lender about the rates another lender is providing you. Repeat this with every other lender. The possibility of losing you as a client can force some of them to lower their interest rates so as to lock you in as a customer. Now, you need to have good bargaining skills to get the best deal. So, if you are not too good at bargaining, make sure to take a friend or family member who is good at it.
You can get a lower interest rate by just borrowing more. And many a time, you will only need to borrow a slightly higher amount to get a big drop in the interest rate. This usually happens since interest rates are applied based on fixed slabs of borrowing amount. So, if you were to borrow $6000, you may have to pay an interest rate of 4% per annum. But if you were to borrow $6150, you might only have to pay 3% per year. Just by borrowing an additional $150, you effectively reduced the interest rate by 1%.
Never Apply With Multiple Lenders Simultaneously
Never ever apply for loans with multiple lenders at the same time. The problem with this approach is that every application will be noted on your credit report and will be used while calculating the credit score. As such, having a high number of simultaneous applications will hit your credit score and bring it down. And this can eventually make the lenders charge a higher interest for the loan.