Can I negotiate interest rates?

When applying for credit, most people believe they must accept whatever interest rate a lender is willing to give them. But that’s not always the case. Beyond shopping around for competitive rates, it never hurts to ask whether a lender is flexible on interest rates. The worst possible outcome is they say no. That’s a small price to pay for a potentially significant reduction in the total cost and timeline of paying your debt.

Interest rates are one of the top concerns Licensed Insolvency Trustees hear about when discussing debt problems. Yet, despite their misgivings, most people accept the often double digit interest rates they’re offered. They then proceed to reward lenders by keeping a balance on high interest credit cards. It’s no wonder some credit card issuers feel emboldened to charge upwards of 25 percent for some customers.

Everything is negotiable

Credit card companies are in business to make a profit. The more people that have, use, and carry a balance on their credit cards, the more money these companies make. Consider the following ways credit card companies make money:

• Annual fees: Some lenders charge a recurring annual fee of anywhere from $25 - $2,500 or more for the “privilege” of having certain cards. Annual fees are common on rewards cards, ultra-low interest rate cards, and exclusive gold / platinum / black cards.
• Transaction processing fees: Credit card companies charge merchants anywhere from one to four percent of the transaction value every time a customer uses a card at their business. This is why retailers often offer cash discounts, refuse to accept American Express, or require a certain transaction amount to accept credit cards.
• Penalties: Lenders will often charge a penalty for things like overdue payments or exceeding the credit limit on a card.
• Interest: Lenders will charge a carrying cost for any balance remaining on a card after the monthly grace period has ended, usually around 19.99 percent per year. This is the cost most people associate with credit — and the one most likely to trap people in the cycle of debt.

If you can demonstrate to your credit card company that you’re likely to earn them recurring revenue through other means such as annual fees and/or transaction processing fees — and are not at risk of missing payments — there’s a good chance they’d be willing to lower your interest rate.

It can be scary to talk to your credit card company, especially if you currently have a large outstanding balance. But they’re not going to yell at you. They want to keep you as a paying, recurring customer, and will at least be willing to hear you out.

Do your homework

There’s nothing stopping you from phoning up your credit card company right now and asking for a lower interest rate. But that’s not likely to produce the outcome you’re looking for. Remember, your creditors have direct access to your credit file and know more about your habits than perhaps even you do. Best to get some bargaining chips up your sleeve first.

Check your credit report

Both Equifax and TransUnion must provide you with a free copy of your credit report every year. Request this from both agencies, as each may have slightly different information and it’s hard to know which bureau your credit card issuer looks to when making decisions about your credit.

• Is your credit score above 650?
• Do you have any missed or late payments over the past six years?
• Do you have any Bankruptcies, Consumer Proposals, or payment arrangements listed?
• Are there any errors that need to be corrected?

The better your credit rating and score, the lower your lender’s risk and the more negotiating power you have. Any errors (such as a lender failing to close an old loan you know you paid off) could make your credit look worse than it really is and should be addressed prior to calling.

Comparison shop

Research cards similar to yours and the interest rates other lenders are charging. Do they offer:

• A low introductory rate for a year or two?
• Balance transfers at reduced or zero interest?
• Lower annual fees than you’re currently paying?
• A higher percentage of cash back, miles, or rewards points?

Another avenue to consider is whether you qualify for a line of credit which can often have interest rates of half or a quarter what you’re currently paying.

Note: The purpose of this exercise isn’t to apply for any of these products, which could harm your credit or cause you to increase your debt load. You’re simply looking for evidence to support your position.

Set your expectations

Based on your research above, decide what you think would be a reasonable interest rate.

It’s not going to be much help if your rate is at 21.1 percent and your lender offers to lower it to 19.99 percent. But you’re also not leaving much room to negotiate if you walk into the conversation expecting a 15 percent reduction either.

If your research indicates you could realistically get a 12.5 percent interest rate elsewhere, set a negotiating target of anywhere between 10 and 14 percent. You’re aiming for the lower number, but even the higher end of that range would be a favourable outcome.

Make your pitch

Now it’s time to call the customer service line on the back of your credit card. Politely inform the representative you’d like to reduce your interest rate from the current rate to your target rate for the following reasons:

• I have been a customer for ABC years and have always made my payments on time and in full
• I’ve checked my credit report which indicates I have a good credit rating
• Other lenders are offering XYZ for similar products

Once you’ve made your pitch, give the representative time to consider your request and provide their response. If they say yes, that’s great — congratulations. But don’t feel discouraged if they don’t immediately agree.

If they say no:

• Request a counteroffer. What would they be willing to reduce your rate to?
• Request more information. What do they typically consider when deciding to lower an interest rate?
• Ask whether the agent has the authority to lower interest rates. If not, ask to be forwarded to someone who does.
• Implement some of the agent’s feedback and try again in a few weeks or months.

Tips to make your call as smooth and productive as possible:

Besides doing your homework and knowing what you want to achieve, following are some helpful hints to ensure a positive negotiating process no matter the outcome:

1. Be polite: Say please and thank you, use a conversational tone, make requests rather than demands, and use the agent’s name throughout the conversation.
2. Frame your request as a mutual benefit: Tell the agent that you want to make your debt more affordable and would prefer to remain a client despite seeing better offers elsewhere.
3. Position yourself as a good, loyal customer: Emphasize your responsible credit use, good payment history, and loyalty with this lender.
4. Be specific: Inform your lender of your intention to lower your interest rate and be specific about what rate you’re hoping to get.

If all else fails…

Of course, it’s possible your lender simply won’t be willing to lower your interest rate. It’s not the end of the road. One option is to apply for credit with a lower interest rate and transferring your balance. Another option is to consider a consolidation loan, especially if you have several debts which are becoming overwhelming. If you chose either of those options, we recommend cancelling your other card to avoid building up an even larger debt burden than you had before.

If you can’t get your rate lowered and don’t qualify for lower interest rate credit vehicles, there are still options to overcome your debt. The MNP Debt Calculator can help you evaluate which solutions may be best in your unique situation. Or you could contact your local MNP Licensed Insolvency Trustee for a Free Confidential Consultation to review your financial situation and discuss these and other strategies in depth.