5 Ways to Make Borrowing Money As Cheap As Possible. Actions like bettering your credit score and enrolling in autopay make borrowing more affordable.
While many people find the idea of debt to be daunting, there are still some advantages to borrowing money. For one, it can help you get closer to your financial and life goals. Let’s say you want to be a homeowner but can’t afford to pay $600,000 out of pocket for a house; a home loan can help you move forward with buying it even if you don’t have the ability to pay the full price in cash.
Of course, there are some considerations you need to make when it comes to borrowing money, as there are a number of factors that can actually make it more expensive.
Below, Select shares five tips to keep in mind so you can borrow money more affordably.
1. Improve your credit score to take advantage of lower interest rates
Interest rates can make borrowing money more expensive — the higher the rate, the more costly it will be to take on that loan or borrow credit.
Each lender has its own interest rate range for its loan and credit products. The rate you receive depends on your creditworthiness, which is determined by your credit score.
When applying for any new line of credit or loan with a lower credit score, you’re likely going to receive a higher interest rate since the lender sees you as more of a risk, which will make it more costly for you to borrow money. A higher credit score typically gets you a lower interest rate, making it more affordable to borrow money.
While there are a variety of loan and credit products out there that cater to people with lower credit scores, it’s in your best interest to work on improving your credit score before submitting your applications — if you don’t need the money urgently and have some time to improve it.
Paying your bills on time is the most important thing you can do to help raise your credit score. You should also try to keep your debt balance low and check your credit report regularly so you can dispute any potential inaccuracies that might be bringing down your score.
Credit monitoring services such as Experian can help with this — its *Experian Boost™ feature is completely free and allows you to connect certain utility and telecom accounts to your Experian credit report. By linking your bills, such as your monthly cell phone service and Hulu subscription, you can increase your credit score when the feature picks up on positive and on-time recurring payments
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2. Sign up for autopay
If you’ve been considering different lenders for a personal loan, you may have noticed that some of them offer a discount for using autopay, which allows payments to be automatically deducted from your linked bank account and applied to your bill. Autopay essentially allows you to avoid falling behind on loan payments since you won’t have to remember to manually transfer money each month.
Because it is highly unlikely that you’ll miss a payment when using autopay, some lenders — such as SoFi, LightStream and Marcus by Goldman Sachs — offer a 0.25% APR discount just for using the feature. Even if 0.25% doesn’t sound like a lot at first, the money you’re saving over months and years of paying interest certainly adds up.
3. Make sure your payments are never late
Most lenders will charge a fee for late or missing payments, whether it’s a fixed amount or a percentage of the amount you owe that month, meaning it could potentially be very expensive.
Late payments can also lower your credit score, which will make taking on a future loan or line of credit pricier. Signing up for autopay is a handy way to avoid accidentally making a late payment or missing one altogether. If you don’t want to use the feature, simply mark your calendar each month or set up reminders on your phone to pay before the due date rolls around.
4. Pay off your credit card bill in full each month
Not paying off your full credit card balance by the end of your billing cycle means you’re likely being charged interest on top of your original amount each day that goes by. In other words, the interest charges are making it more expensive to carry your credit card balance.
Because the amount of interest you pay will depend on the balance you owe, the larger your balance is, the more interest you’ll be charged. In some cases, this can translate to a significant amount of money being tacked onto what you already owe each month.
If accumulating interest charges are standing in your way of paying off what you borrowed for good, consider using a 0% APR credit card to pay them down. These credit cards typically offer an initial period of 12 months or more where you won’t be charged interest on your monthly payments. This way, you can transfer an existing balance to this credit card and pay it off during that initial period when no additional interest is accruing.
We ranked the U.S. Bank Visa® Platinum Card and the Citi Simplicity® Card as some of the best 0% APR credit cards for both balance transfers and new purchases. The U.S. Bank Visa Platinum Card offers an introductory period of zero interest for the first 20 billing cycles on balance transfers and purchases (after, 15.99% to 25.99% variable APR; all transfers must be completed within 60 days of account opening and is valid for the first 20 billing cycles), while the Citi Simplicity Card offers 21 months introductory period without interest on balance transfers from date of first transfer, and 12 months without interest on purchases from date of account opening. (after, 15.49% to 25.49% variable APR; all transfers must be completed in the first 4 months.).
5. Apply to lenders that offer different programs for saving money
Nowadays, it’s not uncommon for lenders and fintech companies to offer special discounts for members or new borrowers to help them save some cash when taking out a loan. Oftentimes, the only requirement is that you sign up for a membership or are an existing customer with the lender.
For example, SoFi members who are in the market for a mortgage can get $500 off their loan when they apply for a SoFi Mortgage. Additionally, when you purchase a home through the SoFi Real Estate Center, which is powered by HomeStory, you can receive up to $9,500 in cash back.
To make borrowing money as cheap as possible, check to see what kinds of discounts lenders are offering and consider any interest rates and fees that may be charged.
