The Three Things That Drop Your Loan Rate by Half

Everyone assumes that to get a loan with a better rate, one must do the usual – improve their credit score, apply with many lenders and get competing rates, maybe negotiate a bit. But there are three lesser-known means that will cut one’s interest rate so low that it seems unwarranted and unfair.

They’re not tricks; they’re not loopholes. They’re legitimate ways to transform the lender’s perception of the application process. The catch? Most borrowers never hear about them because lenders don’t want to advertise means that might lower their overall profit.

Adding A Co-Signer Changes Everything

The first one that tends to surprise people is that if a co-signer is brought into the picture, sometimes it can reduce the rate by half or even more. Why? Because lenders no longer look at one person’s risk; they have two potential repayments to secure their investment and therefore have lesser exposure.

For instance, if you’re given 12% on a personal loan because you don’t have much credit history or your income is too variable or non-existent, but your parent, sibling or close friend is willing to co-sign with their excellent credit score on the line with stable income to boot, the same lender might approve you for rates of 5-6% instead. Over time, that’s thousands of dollars lower than what’s projected just for putting another name on the application.

In this case, the co-signer does not have to contribute money; they merely need to guarantee to the lender that they’ll step in should payments not be made. For those young borrowers who have not had the chance to establish themselves yet, or those who are rebuilding their credit, this is an expedient way to get rates that would otherwise seem impossible.

But since getting a co-signer occurs as a last resort in most situations, it’s important to understand that co-signing is a big risk for the other individual. If they agree to co-sign and payments are not made, then their credit also takes a hit. Therefore, this can only work when there’s full confidence in repayment and a co-signer who trusts you implicitly enough to take on that responsibility. This cannot be done cavalierly.

Securing Your Loan With Collateral Nobody Ever Thinks About

Everyone understands that car loans provide lower rates than personal loans because the car serves as security. However, what many fail to realize is how many other assets could be used for backing a loan collateralized with significantly lower rates.

For example, savings accounts. There are lenders who will provide share secured loans or savings secured loans where one’s savings account is backing it. This may seem counterintuitive – why would someone take out a loan with savings? – But sometimes if someone needs to keep their funds stable for emergency situations while also needing to borrow, there are means of getting 3-5% lower rates than unsecured options.

Investment accounts are another scenario. Stocks, bonds or mutual funds may be used as collateral but never sold; certain lenders use those without requiring liquidation, as well. This allows people to keep growing their investments all the while gaining access to money at levels far below personal loan levels.

Equipment, jewelry and paid off vehicles sitting in garages qualify as collateral as well. The key is thinking outside the box about assets you have outright that lenders might find acceptable. The more lenders you seek for forbrukslån lav rente that accept various items as collateral, the more favorable low rates will be accessible than what unsecured borrowing will ever grant.

The caveat? If you default and the lender takes the asset away from you, you lose it forever. This only makes sense if you are confident beyond any doubt in your ability to repay and the collateral is not something for which you’d be upset that it was taken away.

Automatic Payments Provide Hidden Benefits

Finally, if you set up automatic payments from your checking account (the account from which the money will come), this alone will drop your loan payment rate by .25%-.50%. It seems like a minor amount but when we calculate it over years and higher loans?

Let’s say you have a 50,000 loan with an 8% rate over five years and it drops down to 7.5% because of automatic payment options; that’s roughly 700 in interest paid out to your lender instead of being kept in your pocket. Just for clicking a box during the application process. Some lenders even offer a full percentage point if you’re willing to let autopay occur in addition to having your main checking account through their institution.

Why do lenders provide this discount? Because automatic payments lessen lender risk of defaulted payments. If the lender automatically pays it out for them, they’re banking on people not miss paying it just because they forgot or their cash flow was low during payment time. Therefore, the bank saves money on collections and late payment management by passing some of those savings along.

There’s also a psychological component involved. Once autopay goes through, you’re no longer making the active decision to pay; the payment just happens monthly. You have no incentive to skip a payment should you find yourself tight on cash; therefore, it protects you from yourself and also helps protect the lender’s investment.

Ultimately, make sure that there are sufficient funds along with those payments in your checking account because an overdraft fee will wipe any automatic payment savings right out of existence.

The Overlapping Benefit of These Strategies

Where it gets fun is that these three all stack together. If there’s a co-signer involved and equity is used as collateral and autopay is set up without fail, three risk factors important to lenders are addressed where once they may have offered 11%, now they’re closer to 5-6%.

Now not every scenario will permit all three but some will and at least one or two can make all the difference in what is assumed and what becomes reality. Lenders price loans based on risk potential; anything you can do to reduce their potential makes for all parties happy – and ultimately with a lower interest rate.

The Real Life Implications

Ultimately, although these work and they’re vastly helpful when they do, they require extensive planning and often times people or equity no longer needed by someone else. Sometimes borrowers find co-signers but not ones worth using. Other times people have collateral but none acceptable enough to borrow against. Other times, autopay isn’t possible if cash flow isn’t stable enough.

But when these conditions work out – instead of getting 11%, why settle for 7% even if it’s different from what the lender originally quoted? Major improvements are life-changing over time.

The difference between 11% and 6% at 30,000 over five years means roughly 4,000 saved interest spread out over time – but that’s still 4,000 happy in your bank account instead of flourishing someone else’s – with an extra caveat: If these changes were never suggested to borrowers in the first place, it’s quite clear why they wouldn’t since they take more time and effort than merely applying for an unsecured loan.

Make The Math Work For You

Ultimately before doing any of these strategies, run the numbers based on what you’d save versus how complicated it would be versus what risk you’d be taking on for yourself or another significant party if things go south – co-signers need agreements about what happens if expectations aren’t met; pledged collateral require honesty about confidence in repayment; autopay is completely reliant on a stable checking situation.

But when strategies apply – especially one or more of these – their savings aren’t nominal; they’re life-altering; it’s the difference between effectively slashing potential borrowing costs in half based purely on this information alone making sense versus how everything else has shaped your loan process thus far like a looming emotional life debt situation rather than one that’s merely temporary per repayment concluded without feeling crushed under excessive interest for all those years if helped ultimately too much before anything was finalized.