How to Negotiate a Lower Interest Rate With Your Creditors

By Myles Leva

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Last Updated: December 1, 2022

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If you’re suffering from the early warning stages of spiraling debt, you’re not alone.

High-interest rates on credit cards aren’t a big deal until they suddenly are. Then, the results are self-reinforcing; your debt piles up and you face even higher interest rates as your credit score drops.

There is some good news you may not have known about. It is possible to negotiate with creditors, especially credit card providers. However, there are a few things you should keep in mind to ensure the best chances for success.

 

 

Does negotiating with creditors work?

Oftentimes, yes.

It’s a common but untrue adage that credit cards are “bad”. Credit card debt is indeed bad, and interest rates tend to be very high, even if the holder has good credit.

In the majority of cases, your credit card’s interest rate is not set in stone. Most cards come with a variable interest rate. That means that the cards’ interest rates are able to move based on a collection of factors. One of those factors is the issuer’s discretion, meaning that negotiations are possible.

You may negotiate with your credit card provider by calling the card issuer. Your success is in part determined by:

  • The age of the account you want to negotiate for
  • Your payment history in that account
  • Your personal creditworthiness
  • Your ability to negotiate

 

 

How do I negotiate with my creditor?

In general, you want to be polite, but you don’t want to be shy or beat around the bush.

Using the above bullet points, you can highlight why you feel you deserve an interest rate reduction. Highlight the areas where you have been a good borrower, as much as possible. In particular, the length of time you’ve had the account open is very important.

It’s OK if your history with them isn’t perfect. You can still highlight factors that strengthen your position at the negotiation table. For example, a recent increase in your credit score and better recent improvements with regard to the account can be helpful.

While it may not sound like it comes from a position of strength, it’s normally useful to bring up recent and relevant financial challenges. If you’re living off of severance pay for now and have a decent history with your creditor, you may be a prime candidate to negotiate a lower interest rate. Financial difficulties are a strong argument for change on their part. Remember, it’s in their interest to hold onto responsible, long-term borrowers.

When trying to negotiate, it’s generally better to start with your oldest accounts. Some consideration must also be paid to the payment history of each account.

If you should fail on the first try, you don’t need to give up right away. There’s no harm in trying again later. You can come back and reiterate the points you made before, bring up developments that have occurred since, and bring up competitive offers. Try stating the facts regarding other companies that offer better deals. If you’ve been a long-term customer in good standing, this may work in your favor.

 

 

Does it hurt your credit to ask for a lower interest rate?

No, negotiating lower interest rates should not affect your credit score.

There are some options where the result of the negotiations may hurt your credit score, however. Simply asking will do no harm. What can hurt you is:

  • Being rude
  • Making threats, especially when you aren’t going to back them up with action
  • Closing accounts without considering the consequences.

While you can threaten to close your account if your creditor does not yield to your demands, this course can easily backfire. Canceling any credit account will have a negative impact on your credit score on its own. If it’s an account that has a long, good history, you lose the positive impacts that it had on your credit score up to your cancellation.

The other negative impact is that you lower your total available credit. All things considered, this is a huge negative:

  • You’ve gained nothing from your negotiations and subsequent threats
  • Your credit score is hit with one negative
  • A strong positive towards your credit score is removed
  • You’re in no better position to access credit at more favorable rate 

If you happen to have higher debts in other accounts when you cancel one with less, your credit utilization rate shoots up. This is another negative that lowers your credit even further.

 

Can you negotiate a lower interest rate on a loan?

It is much harder to negotiate interest rate changes for other forms of credit after you signed into an agreement.

For installment loans, rates are normally fixed. You can still try, but expect it to be harder.

There are still a few things you can try if you are struggling with loans such as auto loans and other personal installment loans.

The first option is similar to how you could deal with high credit card rates; reach out to your lender and ask them what they can do for you. You should follow a similar logic as well. Use whatever facts strengthen your negotiating position.

When it comes to loans, a common option lenders offer is a temporary pause on payments. If you’re experiencing new financial difficulties but have a good history with that loan so far, they will more likely feel inclined to help you. Again, it’s in their interest to help you pay them back as agreed. Or, at least it’s a better option than letting you default on the loan.

Apart from temporary pauses for installment loan repayments, you can try debt consolidation loans as well. These loans are designed to ease the difficulties of paying multiple loans back with high-interest rates. Instead, you take one large lump-sum loan and immediately pay back all other loans.

 

 

Conclusions: How to lower your interest rate on credit cards

You can always at least try to negotiate a lower interest rate with creditors. You may not succeed, but you can always try again later. There are no negatives associated with attempting negotiations, as long as you don’t make rash decisions as a result.

If you don’t succeed the first time, you can try to improve your profile with your creditor so you can come back with a stronger bargaining hand.

Photo by RODNAE Productions

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