Whether are getting a small short-term loan or a mortgage, your interest rate is going to be important. There are certain things that you need to learn about interest before you borrow any amount of money. The average person doesn’t actually know all that much about interest, and this lack of knowledge can cause devastating results. This article will provide you with some of the most crucial facts about interest that will benefit you in the future.
- Credit Cards Come with Multiple Interest Rates
As strange as it might seem, your credit card has numerous interest rates attached to it. There is a different rate for cash advances, purchases, balance transfers and other things. It is important that you know what exactly these rates are. This way you will know what you can expect to pay overall. Some things can be more costly than others when it comes to using a credit card, and this is the reason.
- Interest Rates Can Change
Interest rates are subject to change, especially with a credit card or variable rate loan. While the introductory rate of your credit card may be 0%, it won’t stay that way forever. Once that introductory period has passed, you will have to start paying something on top of the principal. Variable rate loans can help you save money, but you never know whether your rate will increase or decrease. Fixed rate loans are the safest, but you could end up spending more overall.
- Your Credit Affects the Rate You Get
Your credit is a major contributing factor when it comes to the interest rate you get. Those with high credit scores usually get the lowest rates. While it does depend on the type of loan, this is usually the case. If you don’t have very good credit, you should work on improving it as soon as possible. It is never too early or too late to start doing this. If you are interested in getting a loan, take a look at your credit reports first. This will give you a better idea as to what kind of rate you should expect to get.
- Interest Rates Increase for Many Reasons
We have already established that increase rates are subject to change, but it happens for a number of reasons. Banks can just suddenly design to raise everyone’s rates, but there are lots of other possibilities for a change in your rate. If you are late on paying back your loan, you should be charged what is known as a penalty interest rate. This can make it even more difficult to pay back the money you have borrowed. You need to know when your loan is due so you don’t end up with a lot of extra fees.
- It is Possible to Negotiate Your Interest Rate
There is a good chance that you can get a lower interest rate on your loan or credit card through the art of negotiation. In fact, many lenders expect borrowers to haggle with them over the interest rate. It is important that you take a careful and considered approach when negotiating with a lender over your rate to get the best results. While not all lenders are open to negotiating, many of them will be.
- A Shorter Loan Term Can Reduce Your Interest
If you want to pay as little interest as possible on your loan, you should opt for a shorter term. The idea of not having as much time to pay off your loan can be a little intimidating, but it’s usually for the better. The shorter your term is, the less you will have to pay in the end. Those who are getting a mortgage will definitely need to keep this in mind. Try to aim for a 15 year term instead of 20. This can save you a surprising amount of money overall.
- It’s Possible to Lower Your Interest Rate Mid-Loan
Those who already have a loan can lower the interest rate on it through a number of methods. Refinancing is probably the most effective way to do this. It basically involves taking out another loan with a different lender to replace the loan you currently have. If you have improved your credit since getting the original loan, you could get a lower rate with the new one.
The more you learn about interest rates and how they affect you, the easier it will be to borrow money without regrets. This knowledge can be a very powerful weapon in combating long-term debt and other financial problems. Most people don’t give interest rates the respect they deserve, and as a result they get stuck in debt for years. You need to consider all of these things before borrowing any sum of money.