Compared to other financial products, personal loans are easier to figure out, offered at better rates and truly flexible for any life event. They are fixed-rate loans with the same payments throughout the life of the loan. Pretty easy to manage, right? To help you further manage your debt and achieve your financial goals, follow these three smart ways to repay your personal loan.
1. Only borrow what you intend to pay. Your monthly payments will be easier to manage that way.
Let’s start with your purpose. There’s always a reason behind every personal loan; it’s not something that you just take out because you want to. And that purpose usually has an allotted budget.
Stick to that budget and only finance what you can afford. To back your case, go over your current monthly income and expenses and see what happens if you borrow within your budget and go beyond that.
2. Keep your loan term short. But be ready to make bigger monthly payments.
You’d be able to pay off your loan faster this way. With shorter-term loans, you save on the interest in the long run. They have higher monthly payments so the interest and principal portions of the loan are covered adequately with each monthly amortization.
Of course, a personal loan with a longer term has lower payments. It’s because the repayment of the loan is being stretched out. In the process, you paid out more in interest on a longer-term loan.
3. Pay off your loan early. Understand your prepayment charges first.
Paying off your loan before its scheduled amortization is one of the smartest ways to get rid of it. Have you read your loan documents thoroughly or talked with your lender?
It’s not unusual for a loan to have a prepayment penalty. This is a fee that you will pay aside from your unpaid balance and interest when you pay off your loan before the determined time.
While prepayment penalties are direct as they can get, you may be paying fees that relate to paying off your loan early with you slightly knowing it.
- There is the precomputed interest. It’s a complicated and indirect form of a prepayment penalty. Assuming you’ve borrowed $150 and will pay back an interest of $75 throughout the life of the loan. Your loan balance becomes $150 + $75 = $225 upfront. Essentially, your payments will be based on the interest + balance calculated in advance.
- Standard loans normally work as the interest is charged based on how much balance you owe on the loan and the faster you pay down your balance by making extra payments, the lesser interest you pay as in the case of short-term loans.
While precomputed interest loans are prevalent in auto loans, it certainly won’t hurt to ask your lender.
Thus an additional useful tip is to always communicate with your lender. This is especially true when you are having trouble repaying your debt. Don’t delay. We have access to lenders who can help you finance your personal goals.