A personal loan can be defined as the loan which establishes customer credit granted for personal uses like medical emergency, education, home maintenance, car repairing and even vacation. Such loans are typically unsecured loans that don’t require the borrower to use any asset as collateral. Traditional lending institutions like banks and credit unions issue such loans to a borrower depending solely on his assurance to repay the loan in time.
Since such loans are offered without any substantial security, they are usually charged with higher Annual Percentage Rate (APR) than secured loans like a mortgage or an auto loan. However, under certain circumstances, the APR can be lowered. And here is a discussion on how you can lower the APR on your personal loan.
Improve your FICO score
At the outset, you need to work on improving your credit profile and thus the FICO score. The key to reducing the interest rate on your personal loan is to raise your FICO score because high credit score or FICO score makes lenders feel confident about the borrower’s capacity to pay back the loan. You can improve your credit score by making on-time payment (35% of FICO score), paying off as much debt as you can (30% of FICO score) and refraining from creating new credit account (10% of FICO score). This rule is applicable for all types of personal loans including same day cash loans.
Request the lender
You may ask your lender to reduce the interest rate. It may not always work, but it would be worthwhile if your FICO score has improved or you have been a loyal customer of the bank. In some cases, the lender may be willing to reduce the interest rate without requiring the borrower to refinance. However, this is not a common instance.
Refinance existing personal loan
You can refinance your existing personal loan to get a better interest rate. If you have good credit profile and/or prevailing interest rate has been dropped for some reasons, then also you can qualify for a new personal loan with reduced APR. You may use the proceeds for repaying an existing loan.
Roll the debt into a tenable loan
If you have home equity, you may think about taking out a home equity line of credit or a second real estate loan to pay back existing personal loan. Rolling a debt into a secured loan would help you get lower interest rate, since secured loans are supported by collateral.
These are a few important tips on reducing interest rates on personal loans. Be it personal loans for bad credit or same day cash loans; you may apply these tricks to lower interest rates significantly.