No one wants to be in debt, but sometimes it’s unavoidable. Whether you’re taking out a loan for a car, home repairs, or medical expenses, it’s important to be mindful of the interest rate. Is there a way to avoid crazy interest on loans?
A high-interest rate can quickly turn a manageable debt into an unmanageable one. The cost snowballs into something unmanageable and costly.
Here are some tips to avoid crazy interest on your loans:
1. Shop around for the best interest rate.
Interest rates vary from one lender to another. It pays to shop around! Compare offers from multiple lenders, and choose the one with the lowest rate. Then compare rates from other financial institutions. When it comes to interest rates, it pays to shop around. Start by checking with your current bank or credit union first. You can also use online resources, such as Bankrate’s “Compare Rates” tool, to see what sort of rates are being offered by different banks and credit unions in your area.
2. Make a larger down payment.
The size of your down payment has a significant impact on the interest rate you’re offered. A larger down payment means that there is less risk for the lender, often resulting in a lower interest rate. Borrowers are advised to make a down payment of at least 20% of the purchase price when buying a home.
While this is a good rule, there are situations where it may make sense to put down more. If you have the cash on hand, making a larger down payment can help you secure a lower interest rate and potentially avoid the need for private mortgage insurance (PMI). PMI is insurance that protects the lender in case you default on your loan. This can add hundreds of dollars to your monthly mortgage payment.
3. Have a good credit score.
Your credit score is a key factor that’s taken into consideration when setting an interest rate. Having a good credit score means you’re more likely to qualify for a lower interest rate. If you need to boost your score, there are a few things you can do to raise your odds.
First, make sure to pay all of your bills by the time they’re due. Whether it’s credit card bills, car payments, or any other kind of bill they need to be paid off in a timely manner. Second, try to keep your balances low. This means don’t max out your credit cards or take out loans you can’t afford. Third, don’t open new credit cards or close old ones. Always be diligent about checking your credit report for errors, and dispute them if you find any.
4. Choose a shorter loan term.
Your loan term also affects your interest rate. A shorter loan term means you’ll pay off the debt quicker, which is less risky for the lender. Because of this, you may be offered a lower interest rate.
5. Make extra payments.
If you can afford to, making extra payments on your loan can help you pay it off quicker and save on interest. Make sure you check with your lender first to see if there are prepayment penalties.
Following these tips can help you avoid crazy interest on loans. You can save money and get out of debt quicker by keeping your interest costs down.