Interest rate payments aren’t the only cost of a loan. You will also have to pay interest while paying back the loan.
Reduce your total loan cost. Such as extending the repayment term and getting an income-based repayment plan.
The following factors determine your loan costs.
Factors that influence the cost of a loan:
The interest rate your lender charges on your loan balance is called the interest rate. In addition to interest rates, yearly percentage rates (APRs) can also be shown.
Debt and income: Loan lenders will consider your income when making a loan, like a home loan.
Terms of the loan: In addition to the terms of the loan, the loan terms can also include the length of the loan, if there are any fees associated with the loan and more.
Your credit score determines your interest rate and ability to repay a loan. A higher score reduces the risk that lenders are willing to take on.
All of these factors influence your loan’s total cost. The amount you ultimately pay for borrowing money is still within your control. Several methods to reduce your loan costs.
It is important to pay down credit card balances.
- Pay off all collection accounts and bring past-due funds currently.
- Pay all debts on time.
- Dispute any inaccurate information on your credit report.
Make comparisons between lenders.
If you shop around and compare offers, you may be able to save money on your next loan by shopping around and comparing offers. A variety of loan options and lenders might be available to you depending on the type of loan you need.
When attempting to purchase a home and requiring a mortgage, you can choose between conventional and government-backed loans. Aside from local banks, online banks, and mortgage brokers, you can also shop around online before deciding which lender to use.
Loans for personal use, cars, and more are the same. Make sure you compare loan terms, APRs, origination fees, and other applicable fees when comparing loan options and lenders.
» Read more: Reasons to apply for a personal loan
Autopay can also help you save money on your loan by allowing you to pay your bills automatically. You might negotiate a slight interest reduction with your lender by automating your loan payments. Even without a discount, autopay ensures you never miss a payment, preventing penalties and credit score damage.
Make frequent and early payments.
If your financial situation allows, you should make extra payments on your loan or make early payments. Therefore, you make additional payments toward your loan; the faster you can reduce your total balance, the lower your full interest payment.
If you make consistent extra payments, you may be able to reduce your loan term by months or even years. Most lenders do not charge penalties for paying off your loan early.
Increase your payments
In addition to helping you pay your debt faster, paying more than the minimum you owe each month can also save interest.
The extra R100 you add to your home loan payment will result in an additional monthly mortgage payment yearly if your income is R1,200. The savings may not seem like much, but over the loan’s lifespan, they can amount to thousands.
Additionally, your lender may permit you to make more than one loan payment each month. Consider creating another smaller payment on the 15th if you have a car payment due on the first of the month. Paying your loan down faster and saving on interest will help you save money.
Ensure your loan terms don’t include prepayment penalties or fees before paying your loan off early.
» More info: Consolidate your loans on this calculator
Refinancing the cost of your loan
If interest rates drop or your financial situation improves during your loan repayment, you may wish to consider refinancing your existing loan. You may be able to obtain a better interest rate, a lower monthly payment, or even a shorter loan term, thereby reducing your overall loan cost.
Keep your borrowing to a minimum.
Eliminating loans or borrowing a minimal amount is the easiest way to reduce loan costs.
Keep your loan from being exploited by interest.
Suppose you don’t make payments during forbearance, deferment, or grace period. Your loan balance is capitalized with interest that has not been paid. As a result, your loan balance will increase, and you’ll have to pay interest on that higher amount, which will increase your overall loan costs.
When faced with financial hardship, forbearance can help you get back on your feet. However, interest generally continues to accrue. You’ll pay more if you wait too long to repay the loan.
» Thinking about buying a new car? Try our Car Loan Calculator – Vehicle Finance Calculator
Shorten the term if possible.
A shorter or longer loan is usually your choice when choosing your loan terms. Here are the general time frames for different loan types:
- Term lengths range from one to seven years for auto loans
- A personal loan can last from one to twelve years
Compared with a longer-term length, a shorter-term length will cost you more in interest over time, but it will save you on the total cost.
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Loan amount R100 - R250,000. Repayment terms can range from 3 - 72 months. Minimum APR is 5% and maximum APR is 60%.