This is an often-asked question by customers who have taken loans from lenders and logical so as one might want to reduce the APR that he/she is paying for the loan.
So, to answer your question, yes, you can reduce your APR, or annual percentage rate, on your existing loan.
For those who are not familiar with the concept with APR, it is the amount that includes the nominal interest rate, processing fees, penalties and all other charges that are applicable to the loan. Hence, it is usually higher than the nominal interest rate.
Here are a few ways how you can reduce the APR on your existing loan:
- Improve your credit score
Your credit record plays a crucial role in deciding your loan’s APR. Hence, it is of high importance that you check your credit score before approaching the lender with your request. If you have low credit score, then the chances of reduction in your APR, too, are low.
This is because no lender will be willing to lend to a person who hasn’t displayed a good repayment record. The lenders are, after all, in the business of making money by lending it to you. They would want to minimise their losses and their bad loans, too. Borrowers who are considered high-risk borrowers are mostly offered high-interest loans. So, the best way to reduce your APR is to first improve your credit score.
- Pay your EMIs on time
If you want your lender to lower your APR, you must prove to it that you are a reliable and trustworthy customer who will honour the loan terms. Only those customers who have made their repayment well in time stand a chance to lower their APRs. This is because your repayment history tells borrowers everything they need to know about your credibility and whether they should take a chance on you by lowering your APR. Hence, to enjoy a lower, APR you need to show the lender that you are a disciplined and sincere borrower by paying the EMIs and other bills such as credit card bills on time. Once you establish your reliability, you can ask the bank to lower the APR of your loan.
- Talk to your lender
Let’s be honest, not everyone has a good credit score! But you could still try to lower your APR by reaching out to your lender. Explain to the bank or NBFC the hardships you are facing, financially, either due to illness, or joblessness. You do stand a chance to get you APR lowered if you discuss your issues honestly and ask the lender’s help in working something out that favours you. There’s no surety of this method and you could be unsuccessful as well, but it doesn’t hurt to try, right?
- Get the loan transferred
If, despite, your attempts, the lender doesn’t get you a lower APR, then you can choose to transfer your loan to a lender whose terms are more favourable. Meet other lenders and understand their terms and conditions in depth and then think of getting your loan transferred.
Yes, you might have to pay additional processing fees, but when transferring your loan, but there are banks that don’t take any charges for processing a balance transfer. When you switch your loan to a new bank at lower interest rates, the APR will automatically reduce.
- Get a new loan at lower rates
If none of the aforementioned options work, you can pay off your existing loan by taking a new loan from a new lender. You could opt for this option to discontinue with your high-interest loan and continue with a new low-interest one.
Enquire around, get quotes from various lenders, compare the rates offered and then decide on the best rate and terms and conditions most favourable for you. Once you get the new loan at low-interest rates, pay off your entire outstanding balance of the previous one.
This way, you will not only be able to reduce the annual percentage rate of your loan, but you will also be able to save a significant amount on your EMIs.