Interest rates are still at historically low levels. If you’re paying high interest rates on your debt, it’s time to have a tough conversation with your lenders.
Like an outside lineman protecting his star quarterback, you need to fight hard to protect your net worth. No, you won’t get a chance to tackle your lender, but a good negotiation to lower your interest rates can save you thousands of dollars, which will help you pay off your debts faster and grow your bottom line.
If, for example, you owe $8,000 on your credit card at 19 per cent interest, and pay $250 a month, it’ll take approximately 45 months to pay it off. If, however, you negotiate your rate to 10 per cent, it’ll take you 38 months to pay it off and you’ll save more than $1,500 in interest charges. If you’re wondering what your debts are costing you, check out Get Smarter About Money and Industry Canada for cost-of-borrowing calculators on car loans, credit cards, mortgages and other personal loans.
The best part is that it shouldn’t take you more than 10 minutes per lender. Here’s an easy four-step negotiation process to follow:
- Get prepared by jotting down a detailed list of everything you owe and to whom, balances, current rates and required payments.
- Next, research current rates by reviewing the websites of various lenders along with the following:
- For mortgages: www.canadamortgage.com
- For credit cards: www.money.canoe.ca (index of credit card rates and annual fees under rates, then select credit cards)
- For credit cards: www.canadianbusiness.com (index of credit card rates and annual fees under “my money,” then rates, then credit cards)
- For general current interest rate information: www.bankofcanada.ca
- Then call your lenders one by one, speak to a representative or manager and ask for a better rate. Remember, if you don’t ask, you don’t get! Keep what you researched in mind during your discussion. Most credit granters will try to work with you to keep your business, especially if you’re a good client.
Generally speaking, I’d recommend targeting at least a five to 10 per cent decrease on credit card interest rates and a two to five percent decrease on all other consumer loans. Mortgages can be more difficult to negotiate (refinancing) as they are typically locked in for longer terms, but still investigate whether it’s a worthwhile option for you. Be prepared to present a competitive offer that they could match.
- If the lender doesn’t want to reduce your rate, prepare to take your business elsewhere.
Caution! Sometimes lenders will try to saddle you with fees and penalties for renegotiating. Just be aware that these extra costs are negotiable. Whatever you do, ensure that the benefits of renegotiation outweigh the costs (especially with the renegotiation of a mortgage).
Negotiating interest rates may seem daunting, but it isn’t! Remember that a 10-minute phone call can save you thousands of dollars. Why pay extra interest when you can save money through a simple negotiation with your lender?
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