If you’re in the market for a loan and are considering negotiating a lower interest rate, there are some tips you can use to do so. You may want to consider shopping around for a new lender or making extra payments. In addition, you might want to avoid prepayment penalties if possible. Whether you decide to negotiate or not, the following tips should help you get the best possible loan interest rate.
Negotiating a lower interest rate
There are many advantages to negotiating a lower interest rate on a loan. Some lenders are more flexible with their interest rates, and others are less willing to negotiate. For example, the national banks are known for their strict lending practices, and are unlikely to budge on interest rates or terms. The terms that you agree to with your lender are final. You can ask for a temporary rate reduction, though, which will save you money in the long run.
Before calling a lender, have your account number and personal information handy. Write down the name of the person who will help you. Present your case for a lower interest rate and ask if they will compromise with you. If they don’t, move on to the next company. The next time you’re on the phone with a lender, remember to write down the representative’s name. This will give you a reference when you call back.
Shopping around for a new lender
Getting a loan at a lower rate is not the only reason to shop around. You may also save money on your next loan by doing so. Although it might hurt your credit, rate shopping may help you save money on fees and interest. If you’ve just taken out a loan, you can still build good credit by making on-time payments and keeping your credit utilization low. You may even want to leave your credit card accounts open.
The first step is to gather all the information you can about the loan you want to purchase. Then, contact various lenders to inquire about their loan offers. Before applying, gather your documents and ask each lender for a quote. You should then request quotes from at least five lenders and check more than five. If you can, try to complete the shopping within a 14-day window.
Making extra payments
You might be wondering how making extra payments to get a lower rate on your loan can benefit you. The main reason is that extra payments reduce the amount of interest you have to pay. They also allow you to pay off your loan faster. The extra payments you make can either be made toward the principal or the interest. Some lenders will let you designate the extra payment to go towards the principal first.
One easy way to make extra payments is to set up a separate savings account for the extra money you can set aside for emergencies. Make monthly payments instead of bi-weekly payments. That way, you will have money available when you need it. Or, make the extra payment once a year with a windfall. If this seems too difficult, you can also set up a monthly automatic payment to save the money.
Avoiding prepayment penalties
If you are thinking of refinancing your loan, you should avoid prepayment penalties. Although you can usually avoid these by making small principal payments, they do exist. A soft prepayment penalty is one that does not apply if you sell your house before the expiration of the loan. Hard prepayment penalties may require you to sell your house immediately after it expires. You can also avoid prepayment penalties by paying a partial payment every month until the penalty expires.
When shopping for a new loan, try to find a lender who does not impose a prepayment penalty. If you’re not able to find a lender without a prepayment penalty, ask them how much their fees are. Some lenders charge a prepayment penalty for a specified number of months, while others base their fee on the cost of interest over a set period of time. If a lender charges a prepayment penalty, ask if it is stated in the loan agreement.
