How to Lower APR on Everything from Car Loans to Credit Cards

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Did you know that your APR is costing you money? Not just a little money, a lot of money.

When you learn how to lower your APR, you’re unlocking the keys to a magic kingdom. Not just any kingdom, but a clear financial outcome where you pay less money for loans.

It almost sounds too good to be true. When you do the math on your loan, it makes sense. Just a .25% difference on a mortgage can add up to $4000 over the life of the loan.

Want to find out how to can get substantial savings by lowering your APR? Read on to find out.

What is APR?

The APR is the annual percentage rate. That tells you how much it’s going to cost you to borrow money for one year.

For example, if you take out a small personal loan for $1000 and the APR is 8%, you’ll pay $8 for every $100 you borrow over 12 months. In this case, you’ll pay $96 in interest for the $1000 loan over the year.

Your APR is usually the number you pay the least amount of attention to. What if you have a credit card bill? The average credit card APR hovers around 16.71%, so let’s take a look at how that credit card is really costing you.

You have $1700 on your credit card and you’re not going to pay off the balance this month. To figure out how much you’ll pay in monthly interest, take your APR and divide the number by 12. Using the average, 16.71%, dive that by 12 for 1.3925% for your monthly interest rate.

Next, multiply 1700 by .013925 to discover that you’ll pay $23.67 in monthly interest. That doesn’t seem bad, until you realize that you’ll pay $284.04 in interest over the year.

If you have a loan that you’re planning to take out, you can use this calculator to see how much you’re going to take out on the loan.

What Determines Your APR

Once you understand what APR is all about, you can then figure out how to lower your APR to lower your monthly payments. That begins with learning what goes into determining your APR.

When you go to a bank or another lender for a loan, they look at two things. They look at your ability to pay the loan back and your creditworthiness.

Your proof of income will help them determine your ability to pay back the loan. That will be in the form of pay stubs or your W-2 form.

Your credit score is the primary factor used to determine your APR. Generally speaking, the higher your credit score, the lower your interest rate. The lower your credit score, the higher your APR.

How to Lower Your APR

The good news about your APR is that you’re not stuck with it. There are a few ways to get a lower APR when you’re trying to qualify for a loan.

Maintain a High Credit Score

If you’re in a situation where you’re just starting to shop for short-term loans at LittleLoans, or other types of loans, this is the place to start. You want to know what your starting point is before you start shopping.

Take a look at your credit report through AnnualCreditReport.com.

The most important things that will impact your credit score is your credit utilization ratio and your payment history.

Your credit utilization ratio is the amount of debt you have and the amount of credit available. For people who have maxed out credit cards, but pay on time, your score will still be low. Let’s say that you have a credit card that has a max limit of $1000. You have $990 outstanding on that card. Your Utilization rate is 99%.

You want to keep that number around 30%. Your credit utilization rate can make up as much as 35% of your credit score. If you want to lower your APR, paying down your debt is the easiest way to do that.

Even if you’ve had a loan for a while, you still need to maintain a high credit score to prove that they should lower your APR.

Negotiate Before You Sign

If you’re getting a personal loan or an auto loan, it is possible to negotiate your APR before you sign the paperwork to accept the loan.

You do need to have high credit scores to back up your negotiations. Otherwise, you’ll be stuck with the rate that’s offered.

Pay Your Bills on Time

Before you try to lower your APR, you want to show that you’re not a credit risk and you want to show that you’re a good, reliable customer.

Paying your bills on time is a big part of that. If you’re targeting a credit card where you’re paying a high interest rate, that bill needs to be a priority every month.

Call the Lender or Credit Card Company

When you establish a solid payment history with a particular lender or credit card company, all you have to do is ask them to lower your APR.

Credit card companies want to keep your business, so they should do everything they can to keep you as a customer. You can say that you received an offer from a credit card company offering a lower interest rate and you want to see what they can do for you.

It is Possible to Lower Your APR

The most important takeaway is that your APR can cost you serious money over the life of a loan. Fortunately, you don’t have to be stuck with an APR, even if you initially got a loan with a high APR.

Take the steps to lower your credit score and establish a good credit history with the lender. Then, contact your lender and ask for a lower APR. That’s how to lower your APR.

It’s simple, yet many people don’t realize they have that kind of power over their finances. Are you ready to take control of your financial health? Take a look at these financial resources.

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