If you have a personal loan you may benefit from regularly reviewing your financial position. Taking time every 12 months or so to check up on your budget could save you money in the longer term. That’s because there is a selection of smart strategies you could be using to make the most of your money and reduce the length of your loan.
Not all loans are open to change, so don’t forget to check the terms and conditions of your loan agreement before making any adjustments. Some loans have early repayment charges and it’s important to be sure that these don’t negate any savings from additional payments.
Here are our top five ways to get rid of your personal loan faster.
1. Increase the amount you are paying
When you set up your personal loan you probably created a budget. However, since then your financial position may have changed. Budgets are often cautious and it’s common to prefer to have a little more cash to play with than to want to feel the pinch of an oversized repayment. Now you may realise you could have made your repayments a little bit bigger.
Why not divert extra funds into your loan payments? Any additional money you include in your payment will reduce the size and length of your loan. Try our Personal Loan calculator to estimate your loan repayments based on current interest rates.
2. Make additional payments
You may not be in the position to increase the size of every payment, but perhaps you find you have some extra cash and you are wondering what to do with it. Making one single or multiple additional payments on your loan could yield positive benefits.
If you experience a windfall or have spare cash available, you could make a single additional payment. This will reduce the balance of your loan and result in lower interest costs for the life of the loan and a shorter term.
Alternatively, you may find you want to make an additional payment more than once. This could be driven by an annual bonus payment or additional income from a second source. Multiple payments are even more effective at reducing your loan costs.
3. Increase the rate of repayment
Loans are traditionally set up for monthly repayment but that’s not always the easiest way to pay. If you receive your salary weekly or fortnightly, you may find fortnightly repayments are easier for you to manage. Fortnightly payments can also have a positive impact on the duration of your loan.
If you split your calculated monthly payment in two and pay every two weeks instead, you effectively add an additional month’s payment to every year. You may not notice the impact in your budget, but you will notice the impact on your loan.
4. Avoid skipping payments
While sometimes your financial circumstances can change for the better, it’s unfortunately also possible for them to deteriorate. If you are struggling to meet your loan agreement and repay the required amount it is important to contact your financial provider and discuss your options. Failure to make a payment could negatively impact your credit record and your borrowing ability in the future.
If you are having no difficulties making payments but you’re offered a payment break, it can be tempting to snap up the offer and treat yourself to a holiday or something you have been waiting to buy. Remember payment breaks not only push back the date your loan is repaid in full, they also cost you in additional interest charges. It’s worth taking time to assess the full cost before following this path.
5. Time to refinance?
When you perform your personal loan health check, you may find any or all the options identified here are applicable to you and your loan. Unfortunately, because not all loans are flexible, you may find you need to refinance your loan in order to pay off as much as you can.
Refinancing your personal loan provides a great opportunity to negotiate a reduction in interest rates or increase the frequency or size of your repayments. You can also review your lump sum repayment options and make sure you have maximum flexibility for your future needs. Perhaps you can afford to repay a lump sum now and refinance your loan for a smaller amount going forward.
Whichever option you are keen to explore, always ensure you’re aware of the settlement balance of your loan before beginning to review your options. You can get this by calling your provider.
A personal loan can be a great tool to give you access to cash when you need it. Whether you use your loan for debt consolidation or to fund a purchase or project, it’s important to keep a close eye on it to make sure it’s working effectively for you.
Completing an annual review is a great way to be sure your budget is focused on paying your personal loan off as quickly as possible. Faster repayment means lower interest costs, and results in a shorter term on your loan.
If you have any questions about your existing loan or would like to explore the options on a new one, call AA Finance today on 0800 600 888.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure the content is correct, the information provided is subject to continuous change. Please use your discretion and seek independent guidance before making any decisions based on the information provided in this article.