For this post, we teamed up with our partners at Lite Bank.
Imagine this: you want to buy a car in the next few months, but you know you will need a loan to cover some or all of the costs. This is a good opportunity to start increasing your credit score. Why? When the time comes to apply for a car loan, lenders will find that you have good credit behavior and, as a result, will offer you a lower interest rate.
The advantage of getting a lower interest rate on your loan?
When you repay a loan, part of each payment goes to principal, and part goes to pay interest. The lower the interest rate, the less interest you pay on each payment. The result? When you finish paying off your loan, you will have spent less money.
Below, our partners at Lite Bank share some tips for getting a lower interest rate on your next loan.
Here are some tips to help you prove your good credit habits to future lenders:
- Make your payments on time (even if they are only the minimum payments): ideally, you should be able to make the full payments on all your invoices, every month. If something unexpected happens and you really can’t afford to make the payment in full, it’s important to at least make the minimum payment. This will prevent any negative consequence on your credit score.
- Use less than 25% of your credit limit: show future lenders that you are proactive about your credit situation by resisting the urge to exceed 25% of your credit limit.
- Limit credit requests: When you’re ready to buy a car, you should go to as many lenders as possible to find the best rate. It’s a good idea, right? Not at all. Unfortunately, having too many credit requests over a short period of time can affect your credit score. Lenders want to mitigate the risk of not being reimbursed, and therefore will assume that you will act on all of the requests on your file. Instead, check with the companies offering a quote or an estimate using an unregistered credit check (this type of verification does not appear on your file).
It may happen that you need a loan and don’t have time to improve your credit score. If this happens to you, follow these tips that can help you pay less interest on your loan.
Here are some options to help you lower the interest rate on your loan:
- Choose a secured loan: a secured loan is guaranteed by the value of your property, which gives lenders more confidence that you will repay your loan on time. You will benefit from a lower interest rate. Another benefit? You may also be eligible for a higher loan.
- Choose a shorter loan term: A shorter loan term does not guarantee you a lower interest rate, but allows you to pay less interest costs over the life of your loan.
- Make payments once every two weeks: Paying once every two weeks will also not allow you to get a lower rate, but it will reduce the amount of interest payable on your loan. Why? By making payments once every two weeks, you will make 26 payments a year, rather than 24 if you make biweekly payments. The extra payments you make as well will help you reduce your loan balance faster than with any other payment option; you will therefore pay off your loan faster and pay less interest. Better yet, you will barely notice the difference from biweekly payments.
We all have to pay interest at some point in our lives. By following these tips, however, you can reduce the amount of money paid in interest charges. You will therefore have more money to spend on your retirement savings, the purchase of a house or an emergency fund!
Do you want to shop for a loan, but don’t want to hurt your credit score? Thanks to Lite Bank online submission, you can find out how much you would be eligible for and what your payments would be, without affecting your credit! And it only takes a few minutes: get a quote today.