How to reduce your total loan cost

By Mallika Mitra

Reviewed by Jill Cornfield

Feb 29, 2024

Read time: 5 min

Man and woman using electronic devices, checking loan balances

Key takeaways:

  • Your loan amount, interest rate, and term length determine your total loan cost. 

  • Lenders use your credit score to help figure out the interest rate they’ll offer you.  

  • Do what you can to avoid paying unnecessary fees, such as by paying on time and avoiding any payment method that forces you to pay an extra fee.

Shopping sales isn’t just for clothes and groceries. Hustling up more cash doesn’t always mean moonlighting as a rideshare driver after you finish your day job. There are a few things you can do, before and after you borrow, to minimize the amount of money that leaves your pocket. Every dollar you save is a dollar you can use to reach your goals. 

Ready to make your money work smarter for you? Here are a few tips you can use to be savvier when it comes to debt.

6 ways to reduce your total loan cost before you borrow 

You could improve your chances of getting a cheaper loan by getting ready before you apply. Here are a few ways you may be able to lower the cost before you borrow. 

1. Improve your credit score 

When you apply for a loan, the lender will evaluate how likely it is that you’ll pay them back. One way they’ll do this—and determine your interest rate—is by checking your credit score. Lenders often use tiered pricing, which means different rates for different credit scores. If you have a higher score, you’re more likely to not only to receive a loan offer, but also to pay less interest. 

To find out where you stand, talk to a lender who does a soft inquiry, which is a way for them to check your credit that won’t hurt your credit score. You want to find out whether you’re on the cusp of a score that would get you a better deal. If a lender offers a lower interest rate to applicants with a 720, for instance, and you happen to have a 715, you might want to research how to get over that hump and grab the lower rate.

The best ways to improve your credit over the long term is to pay your bills on time and keep credit card balances low compared to the account limits ( credit utilization). 

2. Borrow less 

Before you borrow, determine exactly how much money you need—and borrow only that much, no more. If possible, cut down your loan amount.

Borrowing less money could result in a lower origination fee, which is the lender’s fee for making the loan. The origination fee is typically a percentage of the loan amount. 

3. Add a co-borrower

Adding a co-borrower to your loan application could help you get better terms if your co-borrower has a strong credit standing. A co-borrower shares responsibility for paying back the borrowed money. 

At Achieve, having a qualified co-applicant could get you an interest rate discount on a personal loan, saving you money on interest over the life of the loan. Having a co-signer could also help you get a loan that you might not qualify for on your own. 

4. Take a shorter term

Loans with shorter terms often come with lower interest rates than longer-term loans. Also, paying off a loan in less time means less total interest charges compared to taking longer to pay off that same loan. 

Take a look at the following example of the interest on a $100,000 with varying term lengths and interest. 

Interest on a $100,000 loan 

Interest rate

Term length 

Total interest


30 years



15 years 



15 years 


5. Compare loans

Research your options. Besides checking with more than one lender, you should also ask what options each lender offers. For instance, if you’re a homeowner with sufficient home equity, you might be able to save money by opting for a home equity loan instead of a personal loan. That’s because a home equity loan is guaranteed by your home, which lowers the risk for the lender. The lower risk is why home equity loans have a lower interest rate, on average, than unsecured personal loans

Talk to a loan expert about your situation and why you want the money. And as mentioned above, be sure to stick with lenders who do a soft pull on your credit, until you’ve made a decision and you’re ready to submit a formal application. 

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6. Negotiate your interest rate with lenders

On some loans, you can negotiate the interest rate. This may involve paying upfront fees to get a permanent rate discount (on a mortgage, it’s called buying mortgage discount points). But other times, it’s simply a question of nudging the lender to their best offer. For auto loans or credit cards, sometimes the first rate you’re quoted isn’t the best one you qualify for. Find out if they’re willing to offer a better deal. 

You’ll be in a better position to negotiate if you can walk away from the loan and think about it for a while. If you wait until you really need the loan, you might find that it’s easier to take the first offer rather than wait for a better one.

6 ways to reduce your total cost on an existing loan

You can reduce your overall loan costs even if you already have the loan. 

1. Make extra payments

If you make extra payments, you’ll pay down your loan balance faster. Interest is based on how much you owe and for how long. Lowering the balance and shortening the time reduces the interest you’ll pay.  

Ask your lender how to make extra payments that will be applied to the principal balance. Sometimes you have to specify it every time you make an extra payment. Also ask your lender if there is a prepayment penalty, which is a fee for paying off the loan early. If there is, only pay off your loan early if you'll save more money than you'll be charged.

You don’t have to make extra payments that are equal to your regular payment. Any extra dollars you throw toward your debt could help you save money. 

2. Set up autopay 

Setting up autopay for your monthly payments helps you avoid missing payments, facing late fees and other financial consequences. 

3. Refinance your loans

Sometimes, it makes sense to swap out your current loan for a new one. This is called loan refinancing. This could be a good idea if you can get a lower interest rate on the new loan. But there are two factors that could reduce your savings.

One is that if you add more years to the life of the loan, a lower interest rate might not save you money in the long run. The other is that refinancing will typically involve paying a whole new set of loan fees. You can use an online loan calculator or chat with a loan consultant to figure out the cost of the new loan and how it compares to sticking with the loan you’ve got. 

4. Consolidate your loans

Debt consolidation means taking a new loan and using it to pay off more than one debt. It might be a good idea to consolidate your debts if you can lower your costs. For instance, home equity loans typically have a lower interest rate than credit cards. 

5. Avoid unnecessary fees

Fees can eat into your wallet, and they’re often avoidable. 

For instance, before you pay a bill by credit card, make sure there’s no convenience fee for doing so. If there is, pay with your checking account or any other method that’s free. Get familiar with the fees your creditors charge and what steps you can take to steer clear. 

6. Ask for loan forgiveness 

If you’re struggling financially, you might be able to lower your costs by negotiating with your creditors to resolve the debts for less than the full amount you owe. Debt resolution is an option for unsecured debts like credit cards and personal loans. If you can show that you have a financial hardship and can’t afford to fully repay your debts, your creditors may be willing to work with you.  

What’s next?

  • Check your credit score: Find out if your bank or credit union offers free access to your credit score so you can review yours and improve it if necessary. 

  • Calculate your financial needs for the smallest possible loan: Review your finances to determine how much you actually need to borrow so you can look for a right-sized loan.

  • Try a DIY debt payoff strategy: Maximize the amount you pay each month toward your debts so you can pay them off as quickly as possible.

Mallika Mitra

Mallika Mitra is a writer and editor helping people make smart decisions with their money. Her work can also be found in CNBC, Bloomberg News, USA Today, CNN Underscored, The Wall Street Journal’s Buy Side, Business Insider, and more

Jill Cornfield

Jill is a personal finance editor at Achieve. For more than 10 years, she has been writing and editing helpful content on everything that touches a person’s finances, from Medicare to retirement plan rollovers to creating a spending budget.

Frequently asked questions

The factors that affect your total loan cost are your interest rate, loan amount, and the amount of time you take to pay it off.

A great way is to see if you qualify for a debt consolidation loan that would allow you to pay off higher interest debts with a lower interest loan.

Another option, although it’s rare, is to ask for a lower interest rate via a loan modification. Loan modifications were common during the housing crisis but aren’t widely offered any longer.

Loan deferment or forbearance may allow you to delay making payments for a set amount of time. But some loans, including some federal student loans, still charge interest during the pause. 

Because the length of your term will be increased, you may have to pay interest for longer, increasing your total cost. During forbearance or deferment, unpaid interest is added to the principal, so ultimately you’ll pay interest on interest. If you can, make interest-only payments even during the pause in your regular payments. 

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