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Reducing Interest Rates

When in debt, you know that you need to pay an interest amount in addition to principal payment. The lender earns the return on the money based on the interest amount. There are different kinds of loans available, secured loans and unsecured loans. The interest amount you pay on these type loans is also different. If you are able to reduce your interest rate then you can save money and you will be able to pay your loans on time. Reducing interest rate means a low monthly instalment and also a less amount for you pay for your loans.

Choose your Loans Wisely

When you take loans there are different parameters, which determine your interest rate. Usually these parameters are responsible for interest rate reduction. Firstly, when applying for a loan, you should do a good preparation about various options available in the market. Since the interest on unsecured loan is more, therefore, you should always try for a secured loan. In case, due to urgency or circumstances you have no other choice but have to opt for an unsecured loan, then try to divide the loan amount in secured and unsecured loans. This will not only help you in reducing interest rate but you also have to pay low monthly instalments.

Switch Your Loans

Another method of interest rate reduction is to switch loans. In this case, you can switch the entire loan amount to a secured loan. Generally, you opt for unsecured loans when you have a bad credit history. Try to build a good credit history over time so that you qualify for a secured loan.

Credit card companies charge a very high rate of interest as they are also providing you with an unsecured loan. The interest rate varies for different types of credit cards but they are always higher than the market rate. It has been noticed that you can reduce your interest rates on credit card by just talking to the credit card company. A survey showed that 57 out of 100 people were able to bargain an interest rate reduction over the phone from their credit card companies. As with other type of loans, reducing interest rates depends on various factors such as:

You have a good credit history.
Your debt to income ratio is low.
You pay your credit card balance to full not just the minimum payments.
You are able to show a good credit record with a specific lender.

The points discussed above, about good credit history are very important and play a very important part in lowering your loan. The debt to income ratio also plays an important part in determining the interest rate when you are trying to get a loan. The calculation of debt to income ratio is very straightforward. Formula to calculate your debt to income ratio is; monthly expenses divided by gross monthly income. If you have a percentage less than 36% then you have a good chance of getting a loan at low interest whereas higher percentage means too much interest.

You should always try to do some mathematics to cut your debts and try to increase your credit score to reduce your interest rate.