7 Items That May Improve APR
The APR that a person pays on a loan may have a big impact on the regularly scheduled payment that a person may pay on a loan. This article will cover a brief definition of APR, several ways to get a lower APR on the next loan, and what is considered bad credit based on credit score. Credit card debt and many other forms of debt can be a ball and chain on an individual's life...but finding ways to lower the APR or effective interest rate can help alleviate some of the stress so the debt can be paid off faster.
What is APR?
APR stands for Annual Percentage Rate. It is the annual rate that is calculated and charged during the whole year over the term of your loan. By knowing the APR on a loan, a person knows the amount of interest they will pay on the loan including all fees, expenses, and additional costs. Companies are obligated by law to state both the monthly and the annual APR. This will help an individual when comparing loans by creating an apples to apples baseline from which to make decisions. Calculating a loans APR can be difficult to do accurately without the use of an APR calculator.
What is Considered Bad Credit?
There is no such thing as a standardized rating system for good or bad credit. However, we could say that the 'bad credit category' falls in between 500 and 650 FICO score. FICO stands for Fair Isaac Corporation. How does bad credit affect one's APR? The worse credit rating a person has, the higher the APR or interest rate will be on a loan. Therefore, it is wise not to be careless regarding one's credit, or it will cause APR to be higher when paying back a loan.
How to Reduce Your APR?
Now, even if a person has bad credit, that doesn't mean its time to give up on getting a loan altogether. In fact, there are certain ways to reduce APR in order to be able to get a lower interest rate and thus lower monthly payments on a loan. The following are 7 ways to reduce APR on your next loan.
1) Know Your Credit Score
In order to get a loan, one must first know what their credit score is. If a person's credit score is unworthy of getting a loan, then this is the first step in determining how to increase an individual credit score. It may even be possible that your credit score will be higher than expected and thus, there will be little need to trying to improve your credit score. In order to find tips on how to choose a company to get your credit report from, read this.
2) Carefully Analyze Your Credit Report
It is important to look carefully at a credit report before applying for a loan. Many times, a credit report will identify ways or certain steps than individuals can take to improve their credit score. For example, an individual may be able to pay off past due payments, or increase payments on an existing loan or old loan in order to get past items out of default or delinquency. Many times, it is possible to work with a collections agency in order to satisfy an outstanding loan.
3) Do Your Homework
Before contacting a credit card company, do research on different rates or APRs offered by each company. This will not only temper one's expectations when applying for a credit card or other loan, but it will also ensure that an applicant finds the credit card or loan with the best APR. By shopping, it may be discovered that an existing loan that you have, has a higher APR and you can finance your loan at a lower monthly payment. The company where your existing loan may be, may want you to remain as their customer and offer a lower APR if you mention moving to another company.
4) Negotiate
That brings us to the fourth method that may reduce APR or annual percentage rate. The fourth way is to negotiate with the credit card or loan company. The company providing the loan or credit will surely want their money back, and if it is impossible to pay back the loan at the current interest rate, then they may be willing to negotiate a lower interest rate. Remember that while negotiating, that you are talking and interacting with another person and you will have better results if you are persistent, polite and respectful in your words and actions. Here is a good article on how to negotiate a lower APR.
5) Look for 0% APR
There are companies that offer a 0% APR rate as a promotional rate to new clients. These 0% APR rates generally last for a specific period of time and then end with interest rates returning to normal. It may be possible to roll over existing credit card or loan debt to a 0% APR credit card where an individual will be able to pay off the credit card debt faster than if the interest rate was higher. It is important to know that some credit card companies will charge a percentage rate of around 3% on the balance being transferred to the new card. This can certainly be a deterrant to transferring a credit card balance but do the homework in order to decide.
6) Get a Co-Signer
This is only for people who are serious about paying off their loan by themselves. The last thing anyone wants to happen is for the co-signer to be stuck with the loan because the individual they co-signed for was irresponsible and couldn't pay off the credit card or loan. Asking friends and family to co-sign a loan is something to consider seriously before doing because it could strongly affect these relationships in a negative way.
This can be advantageous however because the co-signer's credit score will be the one that gets used and it could significantly lower the APR and thus the monthly payment.
7) Repay Everything On Time
Here's a novel idea...if you borrow money, pay it back...and pay it back on time and on schedule. This is the best way to improve a credit score and to get a lower APR. By failing to do this, a vicious cycle can begin where APR can rise making it more difficult to pay back the loans. Then loans and debt grows continuing the cycle.
But if debt can be repaid in a timely fashion, then this cycle can be avoided and the opposite happens where loans get paid on time and APR and monthly payments may decrease. This should be the goal with any type of loan.
Conclusion
It is very important to think long term and act wisely when considering credit card debt or any type of debt for that matter. These are 7 different ways to lower one's APR and hopefully the size of one's debt payments. By lowering APR, and debt payments, it may become possible to get out from under debt and pay it back faster.
