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Question: Is my interest rate normal and can I get it lowered?

Any advice on how to find out whether my interest rate is normal and what I can do to get it lowered?

Response:

There are two parts to this question. 1. How do you find out whether you’re getting charged a fair rate for your loan, and 2. If you feel you’re paying too much, how can you lower it?

Unfortunately “fairness” is a subjective term. Some loans come with a fixed rate, regardless of who you are – certain types of student loans, for example. But for the most part, your interest rate will depend on you: your credit profile; your income; your financial situation; your age. Comparing yourself with your neighbor is pretty useless. That said, you can establish rules of thumb for your loan interest rate by finding out the average rate that Americans are paying for certain types of debt. Bankrate does a great job of keeping track of average car loans and mortgages, for example, and trade groups often have that kind of information, too. But remember that’s an average, which means it includes the very worst credit risks in America, as well as people who earn millions a year, owe no money and have immaculate credit scores. You probably fall somewhere in between.

But say you are comparing yourself with your neighbor, who has the same credit score, earns the same amount, has the same amount of debt and somehow has a way lower interest rate than you do. Is there anything you can do?

Sure. Go speak to your lender. Everything is negotiable. See if they’ll give you a lower rate. The answer may well be yes, but the chances are it will involve a refinancing. This essentially means canceling and prepaying the old loan and issuing a new one – two functions that the bank will charge quite a lot of money to perform. You may end up paying less each month, but before you jump, be sure and run the numbers with a calculator to see how long it will take you to make the fee money back.  You may be able to lower your payments without refinancing by paying more principal. Our friend Michelle Singletary recently wrote about this, and she has some valuable tips and links to calculators for you.

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