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Often times the choice to finance a purchase or save until you can buy it outright with cash on hand is determined by your cost of borrowing.
There are several factors which contribute to your overall cost of borrowing. In this article we’ll review the most important ones to keep an eye on as you look for the right borrowing solution.
The first and most important thing you can do to assure you’re getting the very best rate available is to make sure your credit score is stellar. The best interest rates are reserved for those with great credit scores. If you’re not sure what your credit score is you can order your free annual credit report from one of the three credit bureaus (Experian, TransUnion or Equifax) and check your standing. If you’re close to the cutoff line between good and excellent, for example, spend some time and boost your score before applying for a HELOC (Home Equity Line of Credit). Check this out if you need some advice on how to increase your credit score.
Don’t settle for the quoted interest rate from your lender just because that’s where you’ve always done business. Moreover, don’t be afraid to negotiate if you’ve been quoted a lower rate somewhere else, the worst they can say is no. Let lenders know they have to earn your business with competitive rates and terms.
There’s more to cost of borrowing than the interest rate. How often does the interest compound? What is the minimum payment and how often must it be paid? Do you have the option to increase payments? Sometimes interest rates are accompanied by terms which increase your cost of borrowing due to a myriad of factors.
If you’re signing up, or transferring your balance to a credit product with an introductory or “teaser” rate, be sure you know how long the teaser rate will last and what it might be after it adjusts. Check if your lender has rate caps that limit the Annual Percentage Rate (APR) in case the variable rate goes through the roof.
Upfront lender fees, annual fees, inactivity fees and early termination fees might negate any money you thought you saved by going with the lowest interest rate. Look for lenders willing to waive fees. Avoid payday lenders if at all possible.
Like most financial decisions, there isn’t any ‘one size fits all’ when it comes to finding the borrowing solution that’s right for you. If you’re not sure where to start, please reach out to us. Whether or not you end up borrowing from us or not, we want to make sure you have the knowledge to make sensible financial decisions.