Getting a loan is a necessary step to be able to make large purchases. Loans enable us to buy homes, businesses, land, and fund college. In fact, loans are the way people afford almost any major item that is hard for the average person to pay for in cash. While loans are helpful, they come with a high cost. Whether it’s a mortgage, car loan, an educational loan or credit card debt, there is interest and fees to pay aside from the principal. These all add up. But there are strategies that can help you pay no more than necessary to borrow money. Read on to learn how you can reduce your total loan cost.
Refinance a loan to lower interest
Refinancing your loan can be a great way to reduce your monthly payments and save money on interest.
This definitely applies for home loans, but is possible for any large loan you’ve had for a while. Refinancing can help if you have a high-interest rate or if interest rates have dropped since you took out your loan.
Refinancing can also help you switch from an adjustable-rate loan to a fixed-rate loan, which can provide stability and predictability in your monthly payments.
Pay off the loan early
Paying off your loan early can save you a significant amount of money in interest charges and it’s one of the best ways to reduce your total loan cost. It’s not always easy to budget for, but if possible, make extra payments each month. By paying more than the minimum payment, or making a lump sum payment, you can shave months off the total time it takes to pay the loan.
Paying a home loan early is one of the best ways to save money. To find out how much you could save by paying off your mortgage early, here’s an early payoff calculator to check out.
Be sure to check with your lender to find out if there are prepayment or early payment penalties before you make extra payments.
Consolidate multiple loans
Do you have several loans? Consider consolidating your debt. This can help you simplify your payments and potentially lower your interest rate. It’s also particularly useful if you have multiple high-interest loans or credit card debt. Consolidation may help you qualify for a better interest rate if your credit score has improved since you first took out the loan.
Loan Forgiveness
If you have student loans, check into loan forgiveness programs. These programs all have different requirements, but they can help you reduce or eliminate your loan balance. Loan forgiveness programs may be for you if you meet certain criteria, such as working in a public service job or teaching in a low-income school district. Research the requirements for each program and apply as soon as possible.
Negotiate a lower interest rate
Negotiating a lower interest rate with your lender can help you save thousands on interest charges over time. This is especially true if you have a good credit score or if you are applying for a loan with a bank where you have been a long-time customer. First, compare rates from different lenders to make sure you are getting the best deal. Next, talk to several lenders and let them know you’re in the market for a loan. Lenders are often competitive and the prospect of winning your business just might incentivize them to offer a lower rate.
Summing it up: Reducing your loan cost
Cutting your total loan cost can be a big task, but it can also be a rewarding one that saves you a significant amount of cash. By refinancing a loan you have had a long time, you might be able to get a lower interest rate. If you have a home loan or another large loan, paying off your loan early can dramatically cut the cost of your overall loan.
Other tools like consolidating debt, student loan forgiveness, or negotiating a lower interest rate will also help you save money in the long run. Reducing your overall loan cost is a worthy goal to shoot for, since you can achieve your financial goals faster. Be sure to research your options as a borrower, and consult with a financial advisor before making a decision or taking out a loan, in order to get the best terms for your situation.