TeamOne of the tried-and-true paths to financial freedom is knowing how to manage your finances to pay for your loans. For some people, personal loans have become synonymous with everyday life. Be it starting a business, going on a holiday, buying appliances, or emergency expenses, personal loans are the easiest way to financial occasional indulgences and needs.
However, paying off a loan ahead of schedule could save money on interest and leave you with cash for other expenses. Your credit score might get improved since your credit utilization ratio will be lower. Having said that, if your current budget doesn’t allow for additional loan payments or increases, then you need to understand how to repay your loans faster.
Planning how to repay your loans will save valuable time and also improve your financial standing. Here are five simple approaches that will help you to repay your loans faster.
- Personal Loan Balance Transfer
If your credit card had a significant spending limit, you are displeased with your lender; then you can choose a personal loan balance transfer as a means of repaying it off faster. This means that your previous outstanding balance is closed, and you may get a higher amount of loan sanction at an affordable interest rate.
This makes sense if your credit card service provider offers an option to transfer at a lower interest rate and you are paying a higher interest rate. However, this is possible if you have a good credit score.
- Make an extra payment
Most people may prefer always to make one or more extra payments each year. Some might choose to make an additional payment on top of the regular loan payment whenever they can. Here are ways to come up with the money for extra payments: Birthday money, Work bonuses, Savings set aside throughout the year, Side hustles, holiday money, and many more.
Everyone has a unique situation, so these ways are just some primary means of having additional money to pay off your loans quickly. Your loan impact varies based on the time it takes to make your other payments.
- Make biweekly payment instead of monthly
Making a smaller amount of loan payment every two weeks will help to pay off the loan faster. Submitting half-payments can reduce the life of the loan. It will also shorten the total interest paid on daily interest.
Using this method has two benefits: 26 half payments will be made each year, which is an extra full payment on the year, and it will reduce the life do the loan by some months; more payments will be applied, leading to less interest.
Ensure you consult your lender before embarking on biweekly payments. Different lenders have their policies, and your new payment pattern should produce the results you want to achieve. This method can also be easier from a cash flow perspective.
- Refinancing
If your loan provider allows, you should look into it because it is among the best ways to pay off your loan early. Refinancing helps make payments more manageable, save money on interest, and pay off the loan faster. Note that refinancing makes more sense if it can help you pay down the loan quickly.
Here are some factors to consider before refinancing your loan:
- Loan amount – The amount used to refinance may influence your chances of getting approved. But some lenders prefer to put weight on payment history and credit score than the remaining loan amount.
- Payment history – Make sure you have a good payment history because lenders will always check to know if you can pay your accounts on time.
- Credit score – Assuming your credit score improved after your last loan, then you can have better odds of getting approved for refinancing.
- Round-Up Your Payment
Rounding up your loan payment an effective way to pay off the debt faster. Your new payment amount will become routine after some months, and this chips away from the extra money into your principal balance.
For instance, if the monthly payment is $500 and you round it up to $550 every month. The extra $50 will be deducted from your principal, which can help you save some money.
Conclusion
Most people prefer meeting high-value consumptions using personal loans; it is essential to know how to repay the loan in easy and simple steps. However, these steps reduce interest, improve your credit score, and have a good payment history.
