How to Negotiate a Credit Card Interest Rate

Negotiating your credit card interest rates might not be easy but it is possible. The average credit card interest rate is constantly fluctuating but in comparison to other financial products, interest rates on credit cards are usually the highest. So, there’s plenty meat on the bone and plenty of savings to be had if you can effectively lower your interest rate. Even though the FED has been reducing interest rates, credit card interest rates are still very high. The impact to market rates usually takes some time to play out, especially with unsecured lines of credit. Interest rates tend to go up a lot quicker so it could take a while in order to see a visible difference in market interest rates. However, that doesn’t mean that you can’t start negotiating on your interest rates while those rates come down over time.

Why Would They Lower Interest Rates?

Some lenders will lower interest rates for you simply if you ask them to, however you will need to be proactive and reach out to them first. It also helps to have a valid reason and will greatly increase your odds of success. If you’re undergoing financial hardship this could potentially be a valid reason for them to work with you. There’s nothing wrong with asking for assistance or at least a break on the interest rates you’re getting charged, the worst thing that can happen is you’re told “no”. Some creditors will work with consumers in one capacity or another, it’s not guaranteed but if you explain your situation and any financial hardship you’re undergoing the odds are definitely in your favor. It’s always important to understand the relationship between a lender and a borrower.

Understanding the Dynamic

Understand that credit card companies are willing to work with consumers in many instances and in many scenarios the power lies with you the consumer. Like anything else, Bank of America would rather retain you as a customer instead of Chase or Synchrony or another company. It’s important to understand this dynamic and use it to your advantage when negotiating. Although there is plenty of cross selling and many consumers have more than one credit card this really isn’t so different from switching your internet service or cell phone provider. Verizon and AT&T are constantly going back and forth between promotions with each other in order to win over more customers. So, often times its best to have each credit card company try and match the rates of their competitors.

First Steps in Negotiating Interest Rates

Your first step should be to reach out to your credit card company and explain that you are paying too much in interest and that due to personal reasons (financial hardship, loss of income, medical expenses, etc.) you need a break and lower APR. Explain any financial hardship you are going through as this is very likely to increase your leverage during the negotiations. Once you’ve done this you will want to patiently wait for a response to your request.

Explain Your Situation

Once you’ve reached out directly to the creditor and have received a response you can look to ask for more of an interest rate cut. You can typically do this by explaining that you have been a customer for x amount of years and add further reasons as to why you would like a lower interest. If you want to play hardball reiterate that you have better rates with other credit card accounts. You can also talk about how the target Fed Funds Rate is very low and that most banks are borrowing these funds at a rate of about a few percentage points via the LIBOR. Yet, they are charging you a 20% APR. Although it’s understandable that banks need to make profit, the savings would make a difference in your monthly budget and you need to explain that. Negotiations are always more effective with a nice and pleasant tone. You get more bees with honey. Remember to be always be upfront and honest, if you’re a long-standing customer make sure you make them aware of that. Don’t be confrontational in that you are ruining your relationship but also be firm enough that your point is being made and you are being “heard”.

Terms in Writing

Once you’ve gone through the negotiating process you should request to get the terms in writing (if you’ve managed to successfully negotiate a lower interest rate). This process can be performed with any type of interest rate. You can an even negotiate the interest rate on your brokerage account and interest rate margin.