Guiding consumers since 2009

6 Ways you can secure lower interest rates

By Staff Writer

It’s tempting to be anxious when thinking about credit cards or loan repayments. However, having and living with credit is not a bad thing, if you manage it responsibly and approach it proactively. One way to do this is to secure low interest rates on your credit agreements.  

We spoke to some experts who suggested some ways for you to secure low interest rates, and save yourself thousands of rands over the duration of your loan.

1. Ensure you have a low debt-to-income ratio

When being considered for a loan or credit your interest rates might be higher or lower according to your debt-to-income ratio. Your debt-to-income ratio measures your ability to pay back the money you intend to borrow. It is calculated by dividing all of your debt payments by your gross monthly income. While keeping your debt-to-income ratio low is advised, Daniel Robertson, analyst programmer at Nedbank, says, “It is important to know that the maximum debt-to-income ratio varies from lender to lender”.

2. Improve your credit score

It is not uncommon to have a less than ideal credit score, especially in the wake of lockdown. In fact, research from TransUnion indicates that 78% of South African consumers remain financially affected by the Covid-19 crisis. Improving your credit score takes time but it could be a huge contributing factor to securing low interest rates. Find out what is considered a good credit score.

Tip: you can check your credit score here

3. Shop around

You don’t have to settle on the first offer you get. One provider may categorise you as high risk and apply a higher interest rate, while another may see you as an ideal customer and offer a better rate. Different institutions have different criteria for determining interest rates. If you can’t find the benefits you need, or you are not happy with the interest rate offered, look elsewhere. 

Mickey King, SA financial advisor for the Pro Touch Group, says, “Maintaining your bank accounts and forming a relationship with your bank makes them more willing to negotiate with you”. However, you are also free to approach banks with whom you do not have a current relationship.

Robertson adds, “Consumers often think that when it comes to credit, they need to jump at any opportunity that presents itself. However, they need to remember that they have a choice, and should choose wisely”.

King says, “The banks are looking for security. If you have assets and the financial security to back yourself, then you can negotiate with the bank to give you an interest rate as low as prime”.

4. Apply for debt counselling

There is help out there. With debt counselling you not only potentially have a much lower interest rate, but you also have the opportunity to maintain your relationship with your creditors.

Tip: If you want to know more about debt counselling, or apply for it, click here

5. Make a big down payment

A big down payment is a great starting point for negotiating lower interest rates. Robertson says, “With a down payment, the bank is more confident that you will repay the loan. The higher the down payment, the lower the risk in the eyes of the bank”.

6. Agree to an extended loan period

Many banks will try to extend your repayment term as a trade-off for a lower interest rate. You can still pay off your loan faster if you have the means to make lump sum payments.

Whichever tactics you use, remember that creditors are businesses, and they want to lend to low-risk customers who will pay them back. Prove this to them and your chances of securing a low interest rate are great!

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