It’s too simplistic to say that all loans are bad. Sometimes in life, we need to borrow money to get to where we want to be. If you want to become a doctor, the likelihood is that you’ll need to borrow money to pay for your education. Similarly, if you want a family home, you’ll have to shop around for the biggest loan you’re ever likely to have.
Once you’ve decided that you need a loan to help you achieve your goals, you must take a few steps to secure the best deal. Over the longer term, even the smallest change in the APR could save you thousands in total repayment costs. That’s why we’ve come up with a few tips to help you reduce the cost of a personal loan.
1.Switch to a shorter term if possible
It might be tempting to opt for a personal loan with a longer term to reduce the cost of the monthly repayments, but in the long run, you will end up paying more. If you go for a shorter term, your monthly repayment might go up, but you’ll save more in interest payments and clear the loan more quickly. Just be sure that you can afford the higher monthly repayments before you choose a shorter term.
2. Choose a loan type that suits you
There are lots of different personal loan products, from those that must be repaid in just a few months to home loans with a term of 25 or 30 years. Taking some time to familiarise yourself with the different products available and thinking about what are the cheapest loan types in your particular situation is invaluable. This guide from Wonga South Africa is a good starting point.
3. Pay off the loan early if you can
If you have plenty of spare cash at the end of the month, then a very sensible way to use it would be to make extra repayments on the loan. Under most loan agreements, you will not pay any interest on overpayments, so the money you pay will go solely towards diminishing the capital amount.
Some lenders may charge you to make overpayments, so you must check the terms of the loan first. Unless the lender specifically allows it in your contract, you should also contact the lender first to inform them that you’re going to make an overpayment. Fail to do so and extra fees or interest charges may apply.
4. Improve your credit score
The higher your credit score, the better your chances of being offered a low rate of interest on a loan. It really is that simple. If your credit score has room for improvement, it’s well worth taking the time to increase it before applying for a loan. Here are a few simple things you can do to give your credit score a boost.
Have you secured great rates on a personal loan? Then please share your lender-busting tips with our readers in the comments below.
