How to Become a Smart Borrower: Part 2
1. Shop around for the best borrowing deal. The most recent issue of money or perhaps your local newspaper is good places to start. You can find lists of the best credit cards, as well as the best deals on mortgages, home-equity loans, and car loans in your area. Be sure to call at least half a dozen lenders before taking out a new loan. Two options you should always check out: credit unions and the bank where you have your savings. On average, credit unions offer loan rates that are one to 2.5 percentage points lower than those available at banks and S&Ls. What’s more, they have become increasingly flexible about their membership. Also, ask a loan officer where you keep your checking and savings accounts whether depositors get special breaks on loans. You can sometimes get a quarter-point discount on the interest rate by having your payments deducted automatically from your account each month.
2. Review your credit report before applying for a loan. Credit reporting agencies keep data on your debt payment history and the amount of credit you already have. They then sell this information to lenders, merchants, and other credit issuers, who use it to target you as a potential borrower and to decide whether to grant you more credit.
3. Negotiate rates and fees. Though lenders don’t like to admit it, with a little arm twisting many today will cut their credit card interest rates and fees, as well as lower costs on all kinds of loans. You can score potential savings simply by asking for a better deal and, if necessary, threatening to take your business elsewhere. In 1994 a team of 28 money reporters (who didn’t identify themselves as such) with MasterCard, Visas, or Discover cards called their card’s issuing bank and asked for better terms. Result: Of the 88 banks called (some reporters owned more than one card and called more than one bank), 84 waived their annual fee, lowered their interest rate, or did both.
As an example of the difference that dialing for dollars can make, Signet Bank responded to one reporter’s call by ditching the $18 fee on her MasterCard and lowering her 19.8% interest rate to a reasonable 13.9%. You can also save more money by asking lenders for lower interest rates and fees on car loans, home equity loans, and mortgages. Most banks have an official rate for each type of loan they make. But if you are an existing customer or have a good credit rating, it’s not difficult to convince the bank to lend to you at a lower rate.