Four ways to lower the cost of your personal loans

Credit card, store card, and personal loan debt. They represent the biggest consumer debt in England. The interest rates? Well, if you’ve scoured the internet lately, you already know they are high.

For personal loans, the rates may be low, but many borrowers still find themselves turning everything upside down just to get an extra dime to pay off their loans.

If this describes the situation, you’re in at the moment, then you need not panic. In this article are four great tips to help you reduce the cost of your personal loan. Remember, each of these tips works differently for different people, so choose carefully.

1. Consider Debt Consolidation

This is probably the best move you can take toward reducing the cost of your personal loans. If you have several loans, secured or unsecured, consider reaching out to your lender to see whether you can strike a deal.

Debt consolidation is a move that involves putting all your debts in one “basket.” This means instead of making multiple payments, you’ll only have to make one, with a single interest rate and one fixed repayment term.

While this method is a great way to reduce costs associated with personal loans, it’s important to evaluate your finances to ensure you’re making the right decision. Debt consolidation carries some fees.

With this in mind, it’s advisable to compare the fees you’ll pay against the potential amount you’ll save.

There’s also the issue of collateral that will kick in if you decide to take this route. The lender will require you to put up collateral to secure the loan; this may be your home or car. Tread with caution because you risk losing your assets if you default on the loan.

2. Consider a Card Balance Transfer

Many consumers use this strategy to overcome the interest on credit cards, and you can’t blame them. The average credit card rate in the UK stands at 17.3%. This is the highest it’s ever been, at least in the past 11 years. Some card companies charge up to 25%.

You can avoid these insane interest rates by signing up for a 0% card that accepts balance transfers. Zero-percent cards offer consumers a chance to borrow money and pay without any interest. You transfer your card balance to this card and enjoy 0% APR, albeit for a limited period, usually 6 months to a year.

The interest rate may be set at zero, but you’ll have to pay a certain fee to facilitate the process. Also, you have to keep in mind the time period that the 0% APR will be in effect because that’s the amount of time you have to clear the balance. Go past this period and you’ll have to pay the balance with the applicable rates. Also, before you can consider this move, check your credit score. This option is only available to consumers with good credit history.

3. Move to Another Loan

The personal loans market has a lot of competition from various financial institutions. Therefore, it’s easy to find another loan that offers low-interest rates to help you save a significant amount of money.

Let’s use a simple example. If you took out a £10,000 loan, you can save £200 every year if you can get another loan that offers an interest rate 2% lower. You don’t even have to switch lenders. Instead, try negotiating with the current lender to see whether you can get better rates.

While this method is a great option when seeking to save your wallet, it’s also important to know the charges and fees associated with the switch. You also want to look out for any penalties for paying off the current loan early.

You can also consider taking out just right loans with a shorter repayment period. For this, you’ll have to pay high monthly installments, but the interest rate for the overall loan will be lower. Of course, you won’t save on the monthly payments, but the total cost of borrowing should reduce dramatically.

4. Credit Card Cash Withdrawals

There’s only one caveat to using this method, and that is discipline. Lack of it when making payments will result in an even bigger balance, courtesy of the high rates. This is the same reason why many people opt for personal loans instead.

However, if you’re disciplined, the withdrawal option is manageable. All you need is time to get used to the changes. This means taming your appetite for the good things such as the new Jordans you’ve been eyeing or that new iPhone that’s been winking at you from the e-commerce store.

Over to You

Signing off without any mention of a budget would be a crime. Therefore, it goes without saying that you must prepare a simple budget that will help you track both your income and expenses. A budget will help you determine your wants and needs and which item you can do without. With the extra cash, you can pay down your loan and clear it faster.

Finally, you need to have a strategy, a game plan to keep you on track. This goes for any option you decide to take. It’s all about remaining disciplined throughout the debt repayment process. Your persistence and willingness to achieve financial freedom will surely bear fruit at the end of it all.