Anytime you borrow money, your APR can be the difference between paying a lot in interest or paying a little. A very small difference like a .25 difference in APR could save thousands over the course of a home loan.
Anytime you’re paying a higher APR, all you’re doing is lining the pockets of banks. Wouldn’t you like to see that money go elsewhere instead of a bank’s bottom line and its shareholders?
You can do that by lowering your APR score. Would you like to learn more about your APR score? Read on to find out what APR means and tips to lower your score.
What Is Your APR?
APR means annual percentage rate. It’s the percentage of interest you’ll pay in interest in one year.
Should you borrow $5000 at a 10% APR, you’ll pay $10 for every $100 you take out. In this example, you’ll pay $500 in interest, spread out over 12 months. That comes out to $41 a month in interest.
Now take the APR and cut it in half. Instead of paying $500 in APR, you’ll pay $250. That comes out to just about $21 a month in interest. That’s a big difference the APR could play in your finances.
The lower your APR score, the less interest you’ll pay. There are many factors that determine your APR. The type of loan, you take out, the amount of the loan, your credit score and the payment terms all play a role in the APR.
A Good APR will depend on the type of credit you have. For example, a credit card has on average a 17% APR. A home loan, on the other hand, may be as low as 4%.
How to Lower Your APR Score
The good news is that there are many factors that determine your APR score. That means that there are many more ways and opportunities to lower your score. These are some of the ways you can lower your APR score.
1. Pay Your Bills on Time
Sometimes, it’s good to be fashionably late. That’s not the case when you’re paying your bills. Credit card companies and lenders don’t hesitate to note late payments on your credit report. You want to make sure that you pay your bills on time, every time.
2. Negotiate Your APR
If you have a great credit score and different loan options on the table, you do have room to negotiate your APR score.
For example, you may prefer one lender because they offer better service, but there’s another lender that offers a much lower interest rate. You can contact your preferred lender and tell them about the offers you have in front of you.
They may be willing to negotiate a lower APR score
3. Call Your Creditors
Do you already have accounts at credit card or loan companies? Now’s your chance to shine as a good customer.
It’s easy to get your creditors to lower your interest rate, especially if you have a good track record. All you have to do is ask. Call them and ask them to see what they can do for you.
4. Have a Good Credit Utilization Rate
Don’t max out your credit. That’s a simple way to explain the credit utilization rate. The closer you are to maxing out the credit you have available, the higher your APR score.
You should pay off your loans and credit cards down as much as possible to have the best APR.
5. Shop Around for Loans
You have power in the loan transaction and with credit card companies. You can use that power by shopping around and comparing loan rates.
You can do the work yourself and compare rates from direct lenders. Taking the time to do this now could save you a lot of money in interest.
6. Pay a Higher Down Payment
If you’re taking out a high-dollar loan and you have a high APR score, you may be able to lower it by putting more money down as a down payment.
That will lower the overall amount of the loan, which means less risk for the bank. The bank may reward you with a lower interest rate.
7. Take Advantage of 0% APR
How does 0% APR sound? Many car companies and credit cards offer a 0% APR credit card or loan.
Credit card companies will often use this as an introductory rate for the first 6 or 12 months. You can get these offers and pay nothing in interest.
8. Don’t Apply for Credit Too Often
One factor that impacts your credit score is how often you apply for credit. If you apply for credit cards or loans often, you will usually go through a hard credit check, which notifies credit agencies that you’re applying for credit.
This will appear on your credit report and lower your score by a few points. The more often you apply for credit, the higher APR score you’ll have.
If you do shop around for loans and credit cards, make sure that they do what’s called a soft credit check at first.
9. Use Other Factors in Your Credit Score
Credit reporting agencies have noticed that it’s harder for many people to have a good APR score. Instead of punishing them for having bad luck financially, they are giving people more opportunities to improve their scores.
Experian is one credit agency that allows people to include their rent and utility payments in their credit score. You can do the same for your scores. You have to be sure that you pay these bills off on time every month.
It’s Possible to Lower Your APR Score
When you’re taking out a loan or paying off debt, you want your credit score to be as low as possible. That can turn into big savings and more money in your pocket, not the bank’s.
The key to lowering your APR score is to take care of the credit that you do have right now. Pay your bills on time and don’t max out the credit that’s available to you.
You can also empower yourself and negotiate a lower APR with your lenders and credit card companies.
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