Getting a Low Interest Rate on Your Loan: 4 Key Tips

Getting a low interest rate on your loan can save you money over the life of your loan. Of course, the lender is free to determine the exact interest rate they wish to set. But some research and careful attention to your own finances can lead lenders to drop interest rates in an effort to attract your business.

Clean up Your Credit History

The better your credit, the more willing a lender will be to work with you. However, your credit history may contain some errors or misleading information which you may not even know about; these errors may make you seem more of a credit risk to any lender. Fortunately, you are entitled to request a free copy of your credit history from each of the three credit bureaus once each year. Before applying for a loan, check your credit report for any errors; if you find any misleading or outdated information, you can contact the credit bureau and request they correct the information.

You may also notice that a creditor is missing from your credit history; not every creditor reports information to the credit bureaus on time. If you have a good record with that creditor, you definitely want your record to reflect it. Fortunately, you can ask these creditors to file a report on your account with the credit bureaus.

Cut Back on Credit Cards

If you have a number of credit cards, you may want to close some of them, even if the balance is zero. Many lenders are uneasy if a borrower has several open credit card accounts, because they feel there is a possibility you may use those cards, and then miss your mortgage payments because of the extra debt. This leads many lenders to charge a higher interest rate to reduce their own risk. By canceling excess cards, you reduce the potential risk a lender faces, which may lead them to give you a lower interest rate.

Check Several Lenders

Every bank and every lender uses different standards for determining their interest rates. What some banks consider an acceptable level of risk, another bank may consider dangerous. By checking the interest rates offered by a number of banks, you can find the lowest possible rate available for your desired loan.

Offer a Higher Down Payment

The more money you can pay up front, the less money the bank need to lend you - which means, the less risk the bank faces. By paying just 1% more of your mortgage amount up front, you can drop up to a quarter of a percentage point in your interest rate. 

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