Many lenders are often surprised to learn just how much they can save on the cost of their loans by simply repaying costs early, or moving their debt. Even if there’s an extra charge for making changes to your loan, you might be able to save a lot of money in the long run.
For example, if you don’t have savings, you may still be able to pay off the loan you owe in full using a different loan. For instance, this might include switching to a provider that offers a shorter deal or a cheaper rate. If you go for shorter-term loans your monthly repayments might increase, but you’ll save a lot in interest.
Repaying your Loans with Savings and Consolidation
It usually makes sense to pay off any of your outstanding loans using savings, and considering any early charges for repayment. If you have additional savings that you can use, you will need to think about paying off the most expensive loan debts that you have first.
If you don’t have savings, and you want to reduce the overall amount that you need to pay to get rid of your debts as quickly as possible, then you might want to consider debt consolidation loans. Some loans are specifically advertised as solutions that are intended to help you consolidate your debt. These financial solutions are all about helping you to merge numerous loans that you might have into a single loan instead.
Because debt consolidation loans are usually secured against your home, or another important asset, it’s important to make sure that you have a good plan of action in place if you think that a debt consolidation loan might be right for you. For many people, these solutions can appear to be an attractive option thanks to their lower repayments and interest rates. However, they can also cost you more in the long-term if you’re unable to keep up with thee repayments.
For a debt consolidation loan to be effective, it’s important to make sure that you know how you’re going to repay the money that you owe in advance. If you can create a plan for debt repayments and stick to it, then you can reduce your chances of encountering any problems. Remember, free debt advice agencies exist to help you with your money management.
Super Balance Transfers on Credit Cards
If you have a lot of discipline when it comes to repaying the debts that you owe, and your credit score is reasonably good, then you might be able to enjoy the benefits of an interest-free, or low-interest balance transfer credit card that will allow you to transfer your money to be used for repaying loans and overdrafts.
The problem with these deals, which are sometimes known as super balance transfers, is that they can come with a fee. However, that doesn’t make them a bad choice for some people. All it means is that you will need work out whether using a super balance transfer is cost effective or not. If you can, speak to your personal loan provider and find out how much it will cost to pay off the full amount of the debt, before the low-interest rate runs out.
Using Extra Payments to Reduce Loans
If you think that you can’t pay off an unsecured personal loan using the full amount, then you might be able to make additional payments to help ensure that the loan is paid off as quickly as possible, therefore reducing the amount you spend on interest. With unsecured loans that were taken out after February 2011, it’s possible to make payments of up to £8,000 in any 12-month periods without incurring penalties.
For additional payments over £8,000, there’s a maximum penalty cap of around 1%, or 0.5% on the total amount that’s repaid. That means that if you paid £9,000, you’d be eligible to pay a fee of £90.
Importantly, you’ll need to let your lender know that you plan on overpaying, unless the lender allows overpayments in their contract. Usually, the notice must be given within 28 days of when you make the overpayment. If you send a payment without any notice, then this payment can be treat as though it was received later, so that you pay interest up until that point.
For any loans that were taken out before the first of February 2011, it’s usually not possible to make any partial over-payments, but it is possible to repay in full at any time.
Additionally, it’s worth noting that you can consider claiming back payment protection insurance. Many lenders have sold PPI alongside their credit cards and loans, and you may not have been aware of it. If this policy was sold to you, then you are entitled to claim the money that you spent back.