7 tips to save on interest on your loan repayments
Sep 14, 2022
Hear 7 tips to save on interest on your loan payments
Due to innovations in finance and technology, obtaining loans has become much easier these days compared to a few years ago. Many of us have to take out a college loan to complete our college education, which could be heavy to pay when we start working. Buying your own home is the biggest dream of many. However, it is a huge investment that is possible for most of us without a home loan. Similarly, individuals generally buy cars once or twice in their life and therefore do not hesitate to take out a car loan to buy a car that they would not otherwise be able to afford. Besides these large loans, many people opt for personal loans, durable consumer loans, payday loans, instant loans, etc. which are available for short to medium durations and come with high interest rates. When we start repaying the loan, we realize that we are paying too much interest, which makes monthly repayments a financial burden. This article lists 7 tips to save interest on your loan repayments:
1. Sign up for automatic payment:
Failure to pay your IMEs or dues on time results in accumulation of debt and may result in late payment charges. Accumulated interest and late payment fees can create a huge financial burden for the borrower. Be sure to pay all dues on time to avoid accruing interest and penalties. Additionally, not paying your dues on time can have a negative impact on your credit score. To ensure that you pay all your EMIs on time, it is advisable to take out a debit mandate. A debit mandate is a convenient repayment option that automatically pays your EMI by the due date from the bank account on file.
2. Reduce the term of the loan:
Many borrowers think they will never be able to change the terms of the loan. But if you have a strong credit history, you can ask your lender to make changes to the terms of the loan. A shorter loan term and higher EMIs allow you to pay off your debt faster. Apart from this, if the loan term is shorter, you end up paying a lower amount on interest. Therefore, if your income has increased since the time you received a loan, it makes sense to reduce the term of the loan and pay higher EMIs. However, you must remember that your EMI burden increases by choosing the shorter loan term. Suppose if you cannot make timely repayments of your EMIs due to some uncertainty, you will be charged for delayed repayments, and it will reflect in your credit report for a long time. Therefore, you must choose and modify the term of the loan wisely.
3. Make partial payments:
Thanks to the partial payment, you can significantly reduce your mortgage. Therefore, instead of splurging on luxuries, it is advisable to make partial home loan repayments whenever you have excess funds, such as a bonus, gift, or other unexpected income. However, you should check the prepayment charge with your lender first, as some lenders charge after a certain amount or number of partial payments and some do not. If it is a home loan, lenders do not charge a certain partial payment amount on variable interest rate home loans.
4. Consider Loan Transfer:
We do extensive research when choosing the right lender by comparing several lenders in terms of interest rates, other fees, eligible amounts, terms and conditions, etc. However, due to increased competition, lenders continue to offer attractive interest rates and other additional fees. If a new lender offers you a good deal for a loan transfer, it is advisable to do a cost-benefit analysis and calculate the expected savings taking into account current and new interest rates, outstanding loan amount, loan transfer fees, prepayment charges, etc. Instead of continuing the high-cost loan, it makes sense to opt for a loan transfer if you realize considerable savings. Since home loans are big loans, a home loan balance transfer can help you save a substantial amount on interest.
5. Opt for debt consolidation:
Debt consolidation consists of taking out a new loan to pay off several debts, usually with a lower interest rate. It helps you manage your debt and reduce your financial burden. The debt consolidation loan refinances your existing debts. So it allows you to take out a new loan to combine all your existing loans with better terms like lower interest rate, longer loan term, etc. Consolidating all of your loans can lower your interest costs, which will help you repay the loan. rapidly. It makes sense to opt for a secured debt consolidation loan as they have comparatively lower interest rates than unsecured debt consolidation loans.
6. Develop banking relationships:
Some major banks offer their old and/or privileged customers preferential interest rates on car loans, personal loans, etc. But if you don’t have a savings/checking account or a banking relationship with them, you can’t take advantage of these offers. Therefore, it is recommended to open a bank account with a leading bank that offers such benefits. However, be sure not to open too many savings accounts as this can make managing them difficult.
7. Claim interest deductions:
Certain loans such as home loans and student loans are eligible for tax deductions on the amount of interest. You can save a considerable amount through tax relief. Therefore, be sure to include deductions on your home loan and student loan when filing your tax returns.
As competition has intensified in the market, you are getting attractive interest rate offers from many lenders, even if you have an average credit score. However, it is necessary to compare different online lenders in terms of interest rates, processing fees, prepayment and partial payment fees, late payment fees and other loan terms and choose the one that offers the highest value. It is important to continue to do your research from time to time, even after taking advantage of the loan, to ensure that you are well informed and take advantage of the best offer available.