Whether you have a personal loan for home improvements, are repaying your credit card debt, or any other purpose, finding ways to lower your loan payments and/or pay less interest could save you a lot of money.
First, we’ll start with the various ways to reduce your loan repayments. Then we’ll take a look at how to reduce interest on loans.
There are two strategies that you can use to lower personal loan payments. The first option is to extend your repayment term and repay what you owe over a longer period, and the second is to utilise debt management services such as debt review to reduce your monthly repayment.
Let’s elaborate on each of these strategies so that you can utilise them for yourself.
Extend the repayment term of the loan
You will pay less on your personal loan if you obtain a lower interest rate after refinancing. By refinancing to a longer term, you will pay a lower minimum monthly loan payment.
Due to interest charges, you will likely pay more toward the loan overall. This is a natural consequence of extending the repayment timeline. The longer you repay your loan, the longer you repay interest on the debt.
You will save on the short term, but not the long term. However, sometimes it is necessary, and therefore this is often a more accessible option for people with lower monthly income.
If you pay off a loan at a lower monthly rate at least you’ll have more spare cash for other expenses within that same month.
Apply for a debt management service
If you are struggling to keep up with monthly debt repayments, then debt review can transform your life. By applying, you can consolidate your debt and get help restructuring payment plans to reduce the monthly repayment amount and make repaying your debt more manageable and achievable.
Debt counsellors can help you negotiate with your creditors to lower your monthly payments and waive previously charged fees so that you can pay down your debts and clear room for other purchases in your budget. Without the assistance of a debt counsellor, it can be difficult to convince creditors to accept a reduced debt repayment plan.
By negotiating lower interest rates, your debt counsellor may be able to help you to use more of your payment towards paying off your principal, therefore, getting you out of debt sooner.
Plus, you don’t have to deal with multiple bills from multiple creditors each month since you’ll be repaying a single consolidated amount.
Throughout the entire process, a team of professionals is there to help you at every step and respond to all creditor inquiries on your behalf.
When should you consider this option?
If you are over-indebted
As wages and the economy continue to deteriorate, many middle- and high-income earners are drowning in debt due from unsecured loans – just to stay afloat while others are d
When confronted with this squeeze, people usually think they have one of two choices – either bury their heads in the sand and hope something will change, or admit the truth and take action.
There has been a recent change in your financial circ*mstances
When your income suddenly drops, and you start dealing with diminishing purchasing power or pay cuts, it can lead to incredible stress. Having a stack of debt that you need to repay makes it that much worse
You may not see a way out, but that’s what makes debt review the perfect option.
Now that you know how to reduce your personal loan repayments, let’s move on to reducing interest on your loans.
How to pay less interest on a loan
There are lots of ways to reduce the interest on your loans and you can do several of the methods listed below:
- Make more frequent payments
- Pay off your loans before their tenure
- Enable automatic debit of EMIs
- Utilise loan interest deductions and tax rebates
- Choose the right repayment plan or terms
- Avoid late payments at all costs
- Improve your credit score
Make more frequent payments
If at all possible, pay more often. The fact that you prefer longer repayment terms does not mean you will take the full amount of time to pay off your loan. If you have some spare funds, you might opt to make extra payments. You’ll reduce the interest that can accumulate by repaying your debt faster, which means that you will pay less interest over time.
Pay off your loan before it is due
The faster you pay off your loans, the lower your interest charges will be, but look out for any prepayment clauses. In the case of a high outstanding amount or long remaining tenure, you should definitely consider this option.
Your loan amount and how early you pay it off will determine how much you can save in interest charges if you pay it off early.
Enable automatic debit of EMIs
You will never forget to make a loan payment if you set up an auto-debit facility in your bank account. Additionally, you will avoid any fines or late payment charges.
Utilise loan interest deductions and tax rebates
Certain tax deductions on the interest amount of home and student loans are available. You can save thousands of Rands by taking advantage of this tax rebate. If you have a home loan or student loan, you should include deductions on your income tax returns.
If you’re not sure how much you can claim, consult an accountant.
Choose the right repayment plan or terms
Your repayment plan determines how much interest you will pay. Try to negotiate or shop around if you’re not happy with the interest that you get.
Shorter terms usually mean less overall interest, but be sure that you can afford the repayment amount (even if something unexpected happens to your finances).
Improving your credit score
Having a good credit score is one of the best ways to reduce interest rates from the very start. Clearing up any past due payments, such as credit cards, is the first step to improving your credit score. To improve your credit score, you should also reduce how much of the credit that is available to you, that you utilise.
A better credit score will reduce the interest that lenders prescribe to your loans. This might be the very best way to pay less interest. Set a short-term financial goal to improve your credit score and you’ll have an excellent rating in no time.
Check out our post to learn how you can improve your credit score and build a strong credit record today.
Avoid late payments at all costs
A late fee or penalty is levied by the lender and adversely impacts the borrower’s credit score, so you should try to prevent this.
Before you get a loan, let’s clear up your debt.
