Short-term personal loans are great for when you need a little extra cash for a short period of time. Personal loans offer flexibility, as they are not attached to a particular product. Common reasons that people take out personal loans include paying for a holiday, home improvements, financing a medical procedure, helping to balance the budget or even consolidating or refinancing a debt.
But it’s no good taking out a personal loan unless you understand how best to pay it back. Here are some tips on how to save money on your repayments.
1. Borrow what you need, and nothing more
It can be tempting to borrow just that little bit extra than what you actually need. Don’t fall into that trap. A larger amount borrowed equates to a larger amount to pay back. Your repayments will be higher and this often means you’ll be repaying more in interest as well.
Always do your research into the amount you’ll actually need. If your holiday is going to cost $5000, don’t borrow $10,000 just in case.
2. Create a schedule and stick to it
If you can, set up your repayment periods to coincide with when you get paid. If you get paid fortnightly, make fortnightly repayments on your loan. This way, you can easily keep track of what is going into your account, what is going to the loan and what is left over. This also means you’ll be conscious of when money is going in and out so you’ll hopefully avoid missing any payments. Some lenders may add additional fees onto your repayment if you are late at any point, so it’s really important to stick to your schedule to avoid paying more than you need to.
3. Make extra repayments
If your loan allows you to make extra repayments, take advantage of it. This will not only help pay off the loan faster; it will also reduce future repayments.
If you can, and you have cash to spare, consider making a lump sum repayment whenever possible.
But remember to check whether your loan allows you to do this first. If there are fees or charges for making repayments or paying out your loan early, occasionally you may still come out better off, as you’ll avoid the interest you would have been charged. Do the maths and see what works best for you.
4. Request a shorter repayment period
Remember, the longer you have the loan, the more interest you will be charged. While a minimum amount over a longer period of time may sound appealing at first, the interest will rack up and you’ll end up paying significantly more.
However, consider this option carefully. It may not be feasible for you to commit to a larger payment over a shorter period of time. For some, contributing a small amount for longer may be better as they will be less likely to skip out on payments or miss them because they cannot afford the repayment.
When looking at how best to repay a personal loan, every situation is different. What’s most important is finding the solution that allows you to pay off the loan as quickly as possible. Make sure you can meet your financial commitments, both to the loan and to all other areas of your life.
