There has been a persistent interest rate hike these days. It isn’t only the result of the recent economic downturn but also other global occurrences, including environmental and geopolitical risks.
These high-interest rates could negatively affect your personal finances, especially if you want to make certain spending choices. The good news is that there are things you can do about these rising rates. Check them out here.
- Improve Credit Score
- Transfer Card Balances
- Consider Shorter-Term Loans
- Opt For Secured Loans
- Negotiate
- Final Thoughts
Improve Credit Score
One of the solid ways to land a better interest rate is to boost your credit rating. It’s specifically helpful when you’re applying for a new credit card and negotiating a lower annual percentage rate (APR).
A higher score increases lenders’ confidence in making payments on time, helping borrowers qualify for lower interest rates and fees. In other words, the higher a credit score, the less risky a borrower is. The lower the risk of borrowers, the more likely they’ll qualify for low-interest rates.
There are several ways to improve your credit scores, for example:
- Pay bills timely. Any delinquent account can hurt your score badly. Even worse, many late payments may stay on your credit reports for more than five years. That also translates to a bad score for over five years.
- Ensure a low credit card balance at the end of every billing cycle. A high credit utilization ratio (meaning you’re about to max out your credit cards) often lowers your credit rating. The rule of thumb is only to use 30% or less of your available credit to maintain a healthy credit score.
- Request higher credit limits. Your overall credit utilization instantly lowers if your credit limit increases and your balance remains unchanged.
Transfer Card Balances
A credit card balance transfer is a money-management strategy that allows you to transfer what you owe from one card to another with a lower annual percentage rate (APR). It gives you big savings.
However, the process of transferring balances isn’t always free. Many credit card companies waive balance transfer fees, but the interest rate could still be slightly higher. Others offer a 0% intro APR on transferred balances for six to about 18 months to entice cardholders, but they have balance transfer fees ranging from around 3%–5% of the transfer amount.
While it can lower interest rates, a balance transfer may negatively affect your credit score. It usually takes place when you’re opening another card to move balances and what you’ll do after the transfer balance, especially if you keep opening new credit cards and transferring balances. Conversely, if you only transfer balances on your existing cards, your credit standing won’t likely get affected.
Consider Shorter-Term Loans
Short-term loans generally have lower interest rates, almost by a full percentage point when it comes to loan repayment options. Despite having higher monthly payments than loans compared to longer terms, shorter terms will help you save more money overall.
It’s based on the foundational concept that the longer the repayment term is, the greater care lenders take to protect their interests in case borrowers default. Additionally, the longer you hold onto a credit product, the more money you’ll pay in total interest over its life.
Opt For Secured Loans
Secured personal loans and business loans are credit products that require collateral, such as your jewellery, car, or home, as a condition of borrowing. They tend to carry fewer risks to lenders because they can recover these assets if you default. That’s why secured loans have lower interest rates than unsecured ones.
Apart from lower interest rates, secured loans come with many perks. Borrowers can often have larger borrowing limits. They can also spread the cost over a more extended period since most secured loan lenders offer longer repayment terms. It makes their repayments more affordable every month. They can also enjoy tax deductions for interest paid on secured loans, such as auto loans and mortgages.
Negotiate
It never hurts to ask—this goes without saying. One of the simplest things you should do is directly contact your lender or credit card issuer and ask for a lower interest rate. Many lenders offer lower rates, which often means converting your account type to another. It’s usually easy as long as you’re qualified for a new account type.
For credit cards, find other competitive offers from other issuers before contacting your issuers. Use this knowledge to your advantage and relay it to your issuer’s representative. Make it clear to them that you’re considering taking your business elsewhere. Doing so will likely make your current issuer more willing to negotiate. It’s especially true if you’ve been keeping up with your payments, maintaining a good history of responsible credit use, and banking with them for a significant amount of time.
Final Thoughts
Once you can lower your interest rate, do everything you can to keep it that way all the time. That means making timely payments, keeping your credit utilization rate low, and building your credit. Doing this will open the door for better interest rates for your future financial goals!
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
