Personal loan hacks your lender doesn’t want you to know
So, you’ve found the right personal loan. Maybe it’s helped you make that home renovation you’ve always wanted, maybe you took that vacation you’d been dreaming of or maybe you’ve just consolidated debts from some of your existing loans. Whatever you took out your loan for, and whatever personal loan you’re now paying down, these hacks can help you save some serious money.
1. Make more frequent payments
Instead of opting for a monthly payment schedule — which nets 12 payments each year — try a biweekly schedule instead. You’ll be paying about the same amount each month, but at the end of the year, you’ll have made one extra payment.
This is because there are 52 weeks in a year, meaning you’ll be making 26 biweekly payments. If you stick with monthly payments, that’s the equivalent of 24 biweekly payments. An extra payment each year adds up quickly. You’ll pay your loan off sooner and save on interest while hardly noticing any difference in your ongoing payments.
On a $20,000 unsecured loan at 14% APR over 7 years, your monthly payment would be $374.80. At the end of your loan term, the total amount paid will be around $31,483.22.
If you were to make biweekly payments of $187.40, you would save 11 months on payments and only repay $29,772.95.
By switching to biweekly payments, you would save $1,710.27 in total.
(This calculation assumes that the lender doesn’t charge fees for additional payments or early payoff.)
2. Round up your automatic debits
An easy way to manage your payments is through AutoPay. You won’t forget to make a payment if it’s automatically deducted from your bank account. This is also an easy way to make extra payments on your loan.
If your biweekly payments are $235, you can round it up to $250, or even $240 – whatever you can afford. Even that extra $5 every payment is going to make a big difference at the end of your loan term.
On the same $20,000 unsecured loan at 14% APR over 7 years: by making an extra contribution of $50 biweekly, you’ll save over $3,000 in interest. You’ll also shave over a year off of your payoff date.
3. Refinance or consolidate your loans
As a borrower, you may get complacent and think switching loans or lenders is too much work and not worth the hassle. But if you see a loan available for a better rate, it could be worth doing some quick calculations to work out if refinancing your personal loan is worth it.
If you have multiple loans, consolidating them into one new loan could not only save you money by locking in a lower interest rate, but also simplify your payments.
Remember to take into account any early payment fees that you might be charged on your current loan, as well as any origination fees or other additional fees you might be charged on the new loan.
For the $20,000 unsecured loan with 14% APR and 7-year term, a reduction in APR can lead to big savings. Say you’ve already paid $10,000 on the loan over three years. By refinancing the remaining balance of your loan — $10,000 — at 12% APR for a 4-year term, you’ll not only reduce your monthly payment, but you’ll also end up saving an extra $2,640 in interest.
- $10,000 with a 14% APR. $3,116.71 paid in interest with a $273.26 monthly payment.
- $10,000 with a 12% APR. $2,640.24 paid in interest with a $263.34 monthly payment.
4. Switch to a balance transfer credit card
If you’re in the final stages of your loan term and don’t have far to go, you might want to consider transferring your personal loan debt to a balance transfer credit card. Several credit card providers let you balance transfer this type of debt and offer you interest-free terms for as long as 24 months.
If you budget your payments and are able to repay your debt within the terms of your new card, you can save considerably on interest payments. In addition, the credit card you take on could also give you an ongoing means of spending after you repay your debt.
Keep in mind that some balance transfer cards only apply the 0% interest rate promotion to the transferred balance and not to new purchases. Be sure you know what the regular interest rate will be on the card for when the promotional period expires.
Using our $20,000 unsecured loan example, let’s say you have a remaining balance, including closing fees, of $4,000. If you transferred that money to a balance transfer credit card with 0% APR for two years, you would avoid paying about $600 in interest. And once you’ve paid off your loan’s balance, you have a credit card that you can use for other spending.
5. Pay off your loan early
When you take on a personal loan, you agree to a certain repayment term length. If you repay your loan before the agreed term, it’s considered paying off your loan early. Some lenders may charge you fees for doing this, but many will let you repay your loan early with no penalties whatsoever.
If your lender doesn’t charge prepayment penalties, you could budget to make lump sum payments and pay off your loan early. You could save hundreds or even thousands of dollars in interest charges depending on how early you repay your loan.
Rather than making the minimum payment on the example $20,000 unsecured loan every month, you could choose to pay off a portion of this balance whenever you have the money to do so. If you pay off the remaining balance of your loan — or even just a large portion — you could save thousands of dollars in interest over the term of your loan.
Five personal loan hacks to save money:
- Make more frequent payments.
- Round up your automatic debits.
- Refinance or consolidate your loans.
- Switch to a balance transfer credit card.
- Pay off your loan early.
Getting the lowest interest rate and the least amount of fees isn’t the only way to save on your personal loan. Use these five hacks to reduce what you ultimately pay in interest and get out of personal loan debt faster than you thought you could. However, these are just tips: your mileage will vary. There’s no guarantee you’ll be approved for a balance transfer credit card or a debt consolidation loan.