Can I Lower My Interest Rates?

Debt can be a double-edged sword. While it’s nice to have access to credit lines through unsecured credit cards and/or a personal loan, and it’s often necessary to maintain a home mortgage, the plain truth is that debt must always be paid back – and with interest.

Interest rates vary according to debt type and the prevailing economic climate, but the one thing that doesn’t vary is that interest expense costs money – and sometimes a lot of it.

Therefore, it makes sense to shop around for the lowest interest rate possible when pursuing any type of debt. But what about interest rates on existing debt – is it possible to negotiate lower interest rates? Let’s take a closer look.

With credit card interest rates commonly running as high as 20%, it is easy to see why attempting to lower them would be a good idea. However, apart from making introductory promotional low interest rate offers to individuals with stronger credit profiles, credit card companies do not go out of their way to make low interest rates available to customers.

Therefore, it is incumbent upon you to initiate the process with your credit card company. The good news is that it is possible to lower your credit card interest rate, and the process is fairly straightforward.

After gathering your statements, reviewing your balance, recent payment history and current interest rate, call the telephone number for customer service. Keep your tone polite, respectful, friendly and calm.

Let the representative know that you have enjoyed being a loyal customer of theirs (for years, if applicable) and that you have a good payment history (assuming you do) and a strong credit score (anything over 700 bears mentioning) but that you are now considering a 0% balance transfer offer from a different bank.

However, before doing the transfer, you would like to know how low the bank can make your interest rate. Notice that this is not a yes or know question – you are politely asking how low they can make your rate before they risk losing your business altogether. Then do your best to shut up and wait for an answer.

If you have a history of late payments, a balance that’s almost maxed out, or a low credit score, you may not get the answer you want. If you do not secure a lower interest rate on that first phone call, politely ask what may improve your chances in the future. Then simply call back in a month and keep calling each and every month, as long as your account remains in good standing. Be persistent.

For many people, a home mortgage represents the single largest debt that they will assume throughout their entire lives. Therefore, it makes perfect sense to keep a mortgage interest rate as low as possible.

For starters, make certain that your credit score is as strong as possible. Make all payments in a timely manner, keep your credit utilization ratio low (percentage of available credit that is actually borrowed – under 20% is ideal) and keep accounts that remain in good standing open.

Focus as well on a stable employment history – since mortgage lenders strongly prefer a reliable income. It always makes sense to shop for the best interest rate through online lenders and credit unions, who will often offer more favorable rates than traditional national banks.

If your credit score is exceptional (800 or higher), then absolutely ask your lender to match a competitor’s interest rate. Mortgage lenders want the strongest borrowers, and this is an area where a strong credit score can benefit you most.

Refinancing is often a viable option, especially for those with adjustable rate mortgages that are past the low “teaser” interest rate period. A new fixed rate mortgage can lead to a lower interest rate and greater predictability than an adjustable rate mortgage.

Meantime, it can also make sense to shorten the term of the mortgage – especially if it is a traditional 30-year mortgage – to ten or fifteen years. This will almost definitely result in a lower interest rate that reduces the total cost of the loan. Monthly payments will rise considerably in this scenario however – so it should only be entered into when financial visibility and the ability to make payments is strong.

Finally, it may make sense to “pay for points” when refinancing. For every one percent of the value of the mortgage loan that is otherwise paid upfront and not borrowed, the interest rate on the loan will typically drop by .125% (1/8th of one percent). Putting a little bit more money down upfront, therefore, will result in lower interest rates and reduced interest expense over the life of the loan.

When it comes to personal loans, some lenders are more open to negotiating interest rates than others. Large national banks, such as Wells Fargo, Chase and Capital One tend to be less flexible with their lending practices. Once a loan is approved at a national bank, the terms and interest rate are generally locked in for the duration of the loan.

With credit unions and community banks, however, it can be a different story. Credit unions are smaller, non-profit organizations designed to serve their community members, so especially if you have a favorable borrowing history with a local credit union, you could be in luck.

If you have demonstrated a reliable repayment history, maintain a stable income and employment background, and have a solid credit score – by all means – mention any and all of these factors to your local credit union or community bank. Their willingness to serve the community will play in your favor and can often result in granting you a lower interest rate on an existing personal loan.

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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