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    Ways To Get Lower Interest Rates - Even With Bad Credit

    Lyn Ridley
    Lyn Ridley - 2020-01-18T22:00:00.000Z

    One of the disadvantages of having a low credit score is that you'll probably end up paying more interest on loans and other types of credit.

    However, this rule isn’t set in stone.

    • Your credit score is one of the most important factors that lenders assess when setting the interest rate on your loan.
    • If you have a FICO score of 670 or less, you can expect to pay more interest than you would if your credit score was higher. 
    • There are several actions you can take to make up for a low credit score. These include having a cosigner and increasing your down payment.

    Improving Your Credit Score

    You may have heard that it takes time to increase your credit score - and it absolutely does.

     Still, it's also true that there are several things you can do to improve your FICO score almost immediately. 

    • Reduce Your Balances - Lowering your credit utilization should add a few points to your score.
    • Hunt For Errors - Look out for mistakes on your credit report and resolve these by contacting the relevant credit bureau.
    • Apply For A Credit Limit Increase - Upping your limit you can reduce your credit utilization without having to pay down the total amount you owe. 

    Boosting your credit score before you apply for new credit may help you to qualify for a lower APR - and there are some other strategies you’ll want to consider too. 

    Get A Co-Signer Or A Co-Borrower

    Having a close friend or relative with good credit is almost as good is having a high credit score yourself.  

    Applying for a loan with a co-signer or co-borrower can significantly increase your chances of approval and lower your APR - but they will be legally responsible for the loan along with you. 

    • A co-signer Is someone who guarantees the loan by promising to pay your installments if you don’t.
    • A co-borrower applies for the loan with you - and bears equal responsibility for repaying it.  Both your names will appear on the loan documents.

    Check If You Qualify For Down Payment Assistance

    Most mortgages require a 20% minimum down payment.  

    This can be a serious stumbling block for many first-time homeowners or bad credit borrowers.

    • Down payment assistance provides much-needed funding for mortgage applicants who may not have the full 20% available in cash.
    • These programs are offered by state housing authorities, nonprofit organizations, and some financial institutions.
    • You'll need to meet certain criteria in order to qualify for down payment assistance. 
    • One of the most important factors is your income - especially how much you earn relative to the median income in the area where you are planning to buy a home.

    Do Some Serious Rate Shopping

    The APRs offered by different loan providers can vary substantially.

    That's why it's essential to shop around for the best possible rates and not settle after the first loan approval.

    • Rate shopping involves applying for several loans from different providers. It's best to apply for a similar amount and loan term so that you can easily compare the different offers.
    • It's about more than just the APR. Mortgage companies may have different fee structures and like interest charges these fees can add up over the course of 20 years
    • Is your APR fixed or floating?  While fixed APRs don't change over time, floating rates will increase every time benchmark interest rates rise. 
    • It won't harm your credit score. It's true that applying for a lot of new credit can knock a few points off your FICO score - but the three credit bureaus make an exception for rate shopping. 

    Applying for various loans and comparing rates does take a little work. 

    Yet, when you consider the long-term savings you could enjoy on a 20 or 30-year mortgage, it’s always a good idea to shop around.

    Paying 3.5% instead of 4.5% on a mortgage of $200,000 could save you over $20,000 over a 30 year period.

    Conclusion

    Having bad credit shouldn't force you to pay unaffordable interest rates on your loans and mortgages.

    The strategies we’ve outlined in this article are designed to save you money on your monthly loan payments.

    Improving your credit score, asking someone to cosign or co-borrow, applying for down payment assistance, and comparing rates will all help you to secure a competitive APR. 

    It’ll be easier to manage affordable monthly repayments and your FICO score should increase over time as a reflection of your on-time payment behavior.