Menu

How to Get Out of High-Interest Installment Loans

If you’re stuck in a high-interest installment loan, you’re probably tired of seeing the interest amount you pay to your lender each month. Fortunately, some borrowers have the option to lower rates—all it takes is careful planning and some proactivity.

The best way to remedy a high-interest installment loan is to pay off your current loan with a better one. If you’re able to access a loan at a lower interest rate, you’ll pay less money over the course of your new loan, for example.

Let’s explore the steps you can take to escape your current high-interest loan.

Step 1: Start Improving Your Credit Score

If you want to escape your high-interest loan, it’s best to improve your credit score as quickly as possible. Make sure you check your credit report so that you know your score. You’ll also want to ensure that everything on your report is correct.

TIP: US law requires all three major reporting bodies to provide you with one free credit report per year.

Next, start paying off your existing credit cards to reduce your revolving credit utilization. It is one of the quickest ways to see a drastic improvement in your credit score and show your commitment to potential new lenders. Opening new credit card accounts increase your available credit, which can also dilute your utilization.

Consolidating your credit card debt to a single card can sometimes improve your score, too. The tools mentioned above won’t improve your credit score if you don’t continue making on-time payments, however. Paying in advance of the due date helps ensure that your lower credit balance is up to date when your credit card company reports your current balances.

Credit Score Improvement Checklist

  • Check Your Credit Score
  • Reduce Credit Card Balances
  • Consolidate to a Single Card
  • Open Cards to Increase Available Credit
  • Continue Making On-Time Payments
  • Pay Well in Advance of Your Due Date

Step 2: Apply for New Loans with Your Improved Score

If you’ve managed to improve your credit score, it’s time to start applying for new loans.

  • Compare rates across lenders and assess the lending requirements of each loan provider.
  • Don’t apply for loans that are outside of your reach.

If you want to avoid damaging your credit report with hard credit checks, it’s best to find a lender that offers soft credit checks or an alternative.

Step 3: Assess the Cost of the New Loan

You need to ensure that your new loan will cost you less money than your current commitment. Compare the two interest rates and assess whether the terms of the new loan impact your long-term ability to save money.

You should always ensure there isn’t an overwhelming number of fees that impact the value of the loan. If a loan has a lower interest rate, but you’re hit with a hefty origination fee or other charges, it might mean you lose money by taking out the new loan.

Reducing Your Interest Will Reduce Your Burden

If you feel like you can’t escape your high-interest term loan, it’s always worth considering the options mentioned in this article. By taking out a new term loan at a lower rate, you can reduce your monthly financial burden. Over the full term of the loan, these potential savings are considerable.

Even if you aren’t looking to escape a high-interest loan, the steps mentioned in this article can reduce the interest rate on almost any form of financing. The better your credit score, the better the chances are that you will gain access to an affordable interest rate on your next loan.

Writer

Vivaan Marsh is a professional writer, editor and an expert in personal finance. Her career as a professional writer stretch for over 11 years. One of her passions in life is to help everyday families with there financial problems, making their life a bit easier and explaining complicated topics in an easy way. Read more >

Write a comment

All fields are required

Comment

Main menu