7 quick tips on how to get a lower cost on your loans
Do you have plans to take out a private loan or do you already have one or two? No matter what your situation looks like, you are guaranteed to explore the possibilities of paying as little as possible in loan costs. Here we present seven tips for lower borrowing costs. Some of the tips are obvious and self-evident, yet easy to forget.
1. Don’t borrow
Of course, if you do not have a loan, you do not have to pay any repayments or interest. Is there an opportunity to not borrow by saving instead? Can the very purpose of the loan be postponed or changed so that you can manage the expense without a private loan or a micro loan?
2. Calculate and borrow exactly what you need
When deciding on a loan amount, it is important to be as accurate as possible. It is also central to have discipline and not be tempted to add a few thousand marks. The temptation to borrow a little more than needed can be great, but it has to be resisted. Each extra thousand increases both your personal financial risk and increases your borrowing costs.
Example: For the bathroom renovation you need USD 100,000. When you submit your application, you realize that it is time to upgrade your TV or computer and thus add USD 10,000. Over time, this extra portion may involve several thousand dollars in extra interest expense.
3. Use the right loan type
Quick loans are for more urgent expenses on smaller amounts, while private loans are instead intended to act as consumer loans on larger amounts. A credit account, on the other hand, is a kind of mix of quick loans and credit cards. Read more about the different types in our loan guide.
For example, if you want to borrow USD 20,000 you can use all these alternatives, but the prices differ between them. The private loan is the cheapest option and so to reduce the monthly costs is the choice.
If you need to borrow more, if you own your home, you can raise the mortgage. It is by far the cheapest loan. It’s just that you make sure that you do not make amortization requirements through the loan.
4. Compare lenders
Interest is the factor that affects your monthly costs the most and the lower the interest rate, the cheaper your loan will be. Thus, it is a given tip to compare before you sign up for a loan.
Comparing when to borrow money is unfortunately a somewhat tricky story. The reason is that all interest rates are set individually and. The prices that the lenders present in marketing are in fact only exemplary interest rates. For private loans, the price (interest rate) for a private loan can be anywhere between 3% and 30%!
In order to give you an indication of what interest rate you are paying, a lender must make a credit report. This is visible in your credit report and many credit reports can negatively impact your credit rating.
This little problem can easily be solved by using a loan broker. With such, you submit an application but receive offers from several banks.
5. Handled payments of interest and repayments
Even the cheapest of loans can be an expensive deal if you do not pay the installments. Paying interest and repayments on time is thus a way of lowering loan costs. Of course, this principle applies to all loans, but the effects of defaulting on a loan can be the most negative for fast loans.
To avoid missing a installment, it may be an idea to set up direct debit. Then the money is sent directly to the lender without having to do anything extra.
6. Pay extra
There is nothing to say that you should follow a slavish installment plan month after month. You have every opportunity to pay extra when you want. Consumer loans such as private loans and fast loans are never met by the rules on interest rate compensation.
By paying extra, you reduce the loan costs in total for the term. Namely, each payment reduces the amount on which the interest rate is calculated.
Note that you are often given two options to choose from when doing an extra amortization. As a “default”, you will usually receive a lower monthly cost during the remainder of the term. You can also choose not to touch the monthly cost to shorten the repayment period instead.
7. Collect loans
Finally, we will advise on the possibility of collating loans in collateral loans. This is not a special type of loan, but a private loan (with a lower interest rate) used to settle other loans (with a higher interest rate).
A mortgage loan can lower your loan costs by large amounts. Installment purchases, quick loans and credit card debt often run at substantially increased interest rates, while a larger private loan can run at interest rates at low single-digit rates. Just note that the interest rate is always set individually based on your financial situation.