A personal loan is one of the best financial tools to solve your short-term monetary problems. You can use it for a holiday, to consolidate debts, or to fix up your home. No matter what your reason might be, though, you should pay the loan on time to avoid paying late fees.
Being unsecured, personal loans often have high interest rates. That’s why it is important to repay it as soon as possible. However, paying it down can be not easy. What follows are some hacks that can help you save money on interest.
Make More Installments
When you choose to pay once per month, you are really making 12 installments yearly. Choosing to pay biweekly would mean you pay the same amount every month, but you end up with one extra payment.
There are 52 weeks in a year, which means you are going to have 26 biweekly installments.
When you are on a monthly scheme, you are making the equivalent of 24 biweekly installments.
When you pay your debt more frequently, you will erase it in no time because you are paying down the interest and the principal at the same time. That way, you save on interest without making a drastic change in your current installments.
You can avoid late payments and their fees by automating them. Setting up automated transactions with your bank is easy. Some banks even allow you to set it up through their website or mobile app. You can also round up the amount to pay off more than just the minimum, thereby saving even more money.
Don’t Get Loan from Banks.
While major banks offer stability, you might be able to find better deals from another loan for bad credit providers. Some creditors you can consider include online lenders, credit unions, peer-to-peer lending, and credit card advances.
Use Balance Transfer
Banks have different interest rates. You can use that to your advantage by transferring the balance of your existing debt to a personal loan with a low interest rate. Taking out the amount you owe at a lower interest rate would help you avoid paying higher rates.
If you have several debts, consolidating them into a single one would lock in the balance at a lower interest rate and save you money in the end. It would also simplify your accounting because you need to remember only one account.
Some banks offer zero interest rates on credit cards for 24 months. If you transfer your balance into one of these, make sure you repay all the balance within the time frame. Some cards also apply zero interest rates on the transferred balance but not on new transactions. Be sure you read the fine print to avoid making an expensive mistake.
Make sure you stop getting more loans after making the transfer. That way, you can easily repay the personal loan rapidly.
Pay Off Loan ASAP
Personal loans have a repayment term. Most creditors don’t charge if you make early repayments. If your provider doesn’t charge prepayment fees, you should include lump sum payments into your budget.
Repaying debts early can also provide you with thousands of dollars in savings because you avoid paying additional interest fees. The savings depend on how fast you can repay your financial burden.
Choosing the Right Personal Loan
It is important to compare various providers first before making a decision. Taking this step will take a lot of time and effort, but you will thank yourself later for doing the research. Analyzing different financial solutions helps you find the one with the best interest rates.
You should also check whether the debt has other fees, aside from what is initially stated. Reading the fine print of the contract is necessary so that you know the risks involved. You also learn the actual cost of the loan in this way.
Pay from Highest Interests to Lowest
You must choose which debt to pay off first. Randomly selecting one is not recommended. List all your debts in terms of their interest rates, from the highest to the lowest. Then, prioritize paying off the highest rate while making the minimum installments on the rest.
Once you repay one, you will have more money to use in repaying the rest. As you go through your list, you’ll be saving money as well using this method. Also, removing one from your list will give you the motivation to continue with your financial goal.
You should keep your accounts positive at all times. Make sure you pay off past due accounts when you can. If you have positive accounts, maintain their status. That way, you don’t damage your credit rating, and you will qualify for better rates in the future.
If you face a possible default, the bank would want to get some of their money back rather than nothing at all. You can negotiate with the bank to restructure your repayment plans. This is ideal when you lose your main source of income.
The bank temporarily freezes the interest rates through restructuring, extends the term, or lowers the rate. In some cases, the bank will remove a portion of the remaining balance. However, doing so is rare, and you’ll be lucky enough if you get a bank to help in this way.
These are some ways to save money on interest. Once you have dug yourself out of your debt trap, you should avoid making the same mistakes in the future. Make sure you can repay the debt within the given terms before you apply for one. Include the monthly installments in your budget so that you can keep up with the payments.