If you currently have a personal loan and wish to be debt-free sooner, there are things you can do to repay your loan faster. First and foremost, in order for these tips to be helpful and cost-effective, it is important to ensure that your loan terms allow you to be flexible with your payments so that you won’t incur early settlement fees.
By increasing your repayment amount, your principal amount is lessened and therefore the time it will take to repay your loan is shortened. Alternatively, if you find a loan with a cheaper interest and continue to make your current repayment amounts, the money saved on interest will decrease your loan term. Making higher loan payments, if manageable, can significantly reduce your loan term and save you money on interest.
This can be illustrated with a hypothetical example. Let’s say that you have a $10,000 personal loan with monthly repayments of $472 per month incurring 24% interest. This loan will be paid off in 2 years and 4 months.
If you take the same loan and instead of paying $472, the borrower pays back $600 per month, the life of the loan is shortened to 1 year and 9 months. This increased repayment amount shortens the life of the loan by 8 months.
Making extra repayments functionally does the same thing as increasing your repayment amount; by paying off more of your loan than what is required, you decrease the set life of your loan. Let’s look at an example of the influence of a lump sum payment on the life of a loan:
Let’s say that you have the $10,000 personal loan with a repayment period of 24 months. You are required to make monthly payments of $638.64 at an interest rate of 21.24%. After month three, you put down an additional $1,000 on top of your regular monthly payments. This is what it would look like in terms of money owing on your loan over 6 months:
|Month||Starting balance||Repayment||Interest paid||Principle paid||New balance|
By paying an additional $1,000, the loan has been almost half paid off in just 6 months. This demonstrates the clear benefit putting down additional payments has on the life and savings on a loan.
This example is hypothetical and does not represent what you may pay with a Nifty Loans personal loan. It was worked out using the helpful formula discussed in our article about how interest rates are determined.
If you think that you may be paying an interest rate that is too high, compare your rate to the interest rates of other loans. You may choose to either approach your current lender asking them to match the interest rate you find on an alternative loan, or to beat it. You will have better room to negotiate if you have been consistent in your repayments and have good credit.
If you decide you want to switch to another lender, you should ensure that you will not end up paying more in fees for closing your current loan and applying for a new one. There is an abundance of personal loan options available to you from banks, credit unions and online lenders. Online lenders are on the rise in line with Australians searching for quick credit. Nifty Loans is one of the fastest-growing online lenders in the country, with flexible repayment options and no hidden fees. We don’t charge early settlement fees or fees for making extra repayments; we may be the lender you have been searching for.
Nifty Loans is a 100% online lender specialising in quick cash loans. We offer personal loans from $300 to $10,000 to be repaid over 24 months. We offer short term cash solutions to Aussies from all walks of life; you can apply anywhere, anytime, nationwide. As an online lender, we can be more lenient than traditional lenders with our lending criteria. We offer bad credit loans to people in need of fast cash with bad credit.
If you’re self-employed and unsure if you can apply for a personal loan, read our latest blog. Sick of having to wear a mask at the gym? Consider financing your own home gym, Nifty Loans can assist you!Apply Now
Since founding Nifty in 2016, Bell has continued to make waves within the local financial sector for his continued ambition and willingness to adopt emerging technologies.Read More