Taking out a loan is a great way to finance essential purchases like an education, vehicle, or unexpected expenses.
However, in getting a loan, it is critical to consider the total cost of your loan and how you might lessen what you have to pay back in the long run. That way, you can ensure that taking out a loan is right for you and it doesn’t negatively affect your current financial situation.
Tips You Should Consider
Several factors can impact your total loan cost. These factors include the loan’s interest rate, your credit score, and even your current income and existing debts. If you want to lessen your total loan cost, you might want to consider following these effective ways:
Shopping around for your next loan might be a big help in saving you some money. This is because not all loan types are the same; they mainly vary depending on the lender. Depending on the type of loan you want to take out, you might also have a wide range of options and different lenders you can select from.
For example, suppose you plan to get a loan for an unexpected expense. In that case, you can compare different loan options, like the personal loans Katy TX has to offer, car title loan in Anderson, SC, or a payday loan in Phoenix, AZ. It’s a matter of convenience, really. You can also compare loan offers through different lenders such as online lenders, banks, and credit unions.
When shopping around, it’s essential to consider the annual percentage rate (APR), loan terms, and the loan fees that might be charged to your overall loan cost. For example, several lenders charge loan fees such as prepayment penalties or origination fees.
Improve Your Credit Score
Typically, those with excellent credit scores tend to have more loan options and get better interest rates than those with bad credit status. Before applying for any type of loan, it might help to check your credit score to know your current standing. If you think it needs more improvement, then it is best to consider these tips to increase your credit score:
- Make on-time debt payments
- Pay all of your credit card balances
- Settle any collection accounts and do your best to bring past-due accounts current
- Assess your credit report and look for any inaccuracies to dispute them as soon as possible
Making Extra Payments
If you want to pay your debt fast, paying more than the minimum loan repayment might help. In addition, making extra payments can also help you save money on interest in the long run. This is because when you repay your loan fast, the shorter repayment term it will have, which also means that the interest rate will no longer accrue for a more extended period.
Suppose you have a minimum of $1,000 personal loan repayment every month. Adding $100 to that amount can make a huge difference. In the long run, the savings can total thousands of dollars over the entire loan term.
Before you decide to make extra payments, it’s best to consult with your lender. Some lenders will not allow you to go beyond the minimum monthly loan repayment and will charge you a prepayment penalty. This type of loan fee is charged to a borrower if he/she pays off all of the debt or part of it earlier than expected.
Set Up Autopay
Setting up your autopay can also help lessen your total loan cost. Some lenders offer to lower your loan’s interest rate if you agree to automate your loan repayments.
Even if you don’t get this kind of discount, autopay can help you avoid getting late payment charges by ensuring you will never miss any loan payment.
Refinancing Your Loan
When you refinance a loan, you take out a new loan to repay the old or more outstanding loan. Ideally, the new loan should have a lower interest rate, shorter loan term, and a lower monthly payment. The terms of the new loan will replace the old one, which reduces the total loan cost of your old loan.
If you have multiple loans or debts and need help, debt consolidation might be the one for you. This process involves paying off your multiple debts with a new loan, which often has a lower interest rate than all of your existing debts combined.
Debt consolidation offers you to pay all your debts in one single payment. Hence, it will be easier to manage your loan repayments.
To Sum It Up
Loans can help cover your small or large expenses, especially if you haven’t prepared any funds intended for it. However, when you borrow money, it doesn’t only add up to the loan amount you want to get from the lender. It also carries the interest rate and fees, adding up the total loan cost.