If you’re looking to take out a loan, it is probable that you are not looking forward to paying the interest that goes with it. Whether you are looking for a car loan, mortgage, student loan, or other type of loan, there are several ways in which you can reduce your interest rate on your new loan.
Put More Money Down
One way which can help you reduce your interest rate on a loan is by putting more money down. Instead of only paying the bare minimum of what is required each time you have a payment deadline, you can make extra payments in order to pay off the loan faster and thus reduce the overall cost. The less time it takes to pay off the loan, the less interest will accumulate.
Shorten the Loan Term
A shorter loan term means less risk for the lender and a smaller interest rate. Short terms loans come with higher monthly payments so you can pay back the loan more quickly, but that means less time owing money to the lender and less time for interest to accrue.
For example, a 5.9% interest rate is common for a 72-month car loan, but you can reduce that interest rate by choosing a shorter term of something like 36 months. You will be required to pay off your car loan a lot quicker, but you will also save plenty of money by avoiding an extra 36 additional months of interest. Although it may be difficult to pay off a loan in such a short amount of time, choosing to shorten the loan term comes with many financial benefits, including reducing your interest rate.
Pay On Time
Depending on the kind of loan, some lenders will offer an interest rate reduction if you can make your payments on time for three consecutive years. If you miss a payment, however, your tardiness will result in cancellation of the reduction. In order to ensure you never pay late, look into setting up automatic payments and keep careful track of your payment schedule, perhaps by writing payment deadlines into your calendar. If you’re not paying attention, it can be easy to miss a payment, sending potential opportunities for lower interest on your loan out the window.
When it comes to paying back loans, high interest rates are often unappealing. Luckily, by putting down more money, shortening the term of your loan, and making your payments on time, you can reduce the interest rate of your loan.
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