Whether you’re looking to buy a lovely home, drive a cool car, have the best vacation of your life, start a business or have some funds tucked away for emergencies, it’ll require a significant financial investment. Fortunately, you have numerous options to boost your financial health, from personal loans to commercial loans and everything in between.
However, personal loans can become a significant burden and put a dent in your monthly budget, thanks to the increasing interest rates and monthly payments. The good thing is that you can do various things to help lower your monthly payments and interest rates, saving money on your loan to make your monthly income stretch further.
To help you get started, here are some tips to consider:
1. Shop Around
The first step is to do your research. The amount you can save on your loans will depend on how well you look around and compare your options. So, when looking for a loan, make sure to contact several lenders. Local credit unions, regional and national banks, and online lenders offer distinct loan products, each with their own fees and rates.
Carefully compare your options and consider your situation and needs when choosing a lender. You can ask your family and friends for suggestions and second opinions to help ensure you get the best deal for your specific need.
It’s also important to note that loan rates tend to change frequently. So, make sure to contact various lenders on the same day to truly compare which rate would work best for your financial position. In addition, factor in any hidden fees when calculating your potential savings for more accurate financial planning.
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2. Consider Debt Consolidation
If you have numerous loans across several channels, for instance, a car loan, mortgage, or credit card debt, one of the ways to save money on all of these loans is to opt for debt consolidation.
Debt consolidation refers to a refinancing solution that makes it easier to manage several loans. With this method, all your debts are ‘consolidated’ or combined into a single loan, often with a more favorable monthly payment–a lower interest rate, monthly payments, or both.
What’s more, most debt consolidation loans feature fixed interest rates, meaning that the interest rate won’t change. It means that you can make a single, consistent payment every month. This can help you better manage your finances and avoid late payments, which may incur penalties on top of the interest rate you’re already paying.
3. Work on Your Credit Score
Whatever loan you’re looking for, you’ll have better offers if you have a high credit score. To a lender, your personal credit score indicates your risk. So, the higher your credit score, the lower your risk. Consequently, the lower your score is, the higher risk you’ll look in the eyes of a lender.
With that in mind, lenders often charge lower interest rates to applicants with higher credit scores. So, if you can, consider improving your credit history and score before applying for a loan. This is one of the essential steps to prepare for bigger loans such as mortgages or auto loans. On the other hand, if you already have a loan, improving your credit score may help you qualify for lower rates with your existing lender or if you decide to refinance.
Here are some ways to improve your credit score:
- Check and correct any errors on your credit history that negatively impact your score
- Get help from credit repair services
- Improve your payment history
- Monitor your credit
Although, it’d be good to note that while a high credit score can help gain favorable loan terms, some lending programs may offer affordable loan options to individuals with lower credit scores.
4. Pay More Upfront
Another way to save money on your loans is to provide a bigger down payment if you can. Paying more upfront can help lower your monthly repayment during the loan term. Moreover, a bigger down payment can also help lower the interest you need to pay.
Here’s an example to give you a better idea:
Let’s say you want to buy your dream car and are looking for a suitable loan. Your dream car comes with a sticker price of $25,000. Let’s discuss this topic in Canadian dollars.
A lender offers a 60-month loan with 5% interest. You can choose between a 15% or 30% down payment.
For a 15% down payment, you’ll have to pay $3,750 upfront. Your monthly payment would be $401.01, and you’ll need to pay a total of $2,810.82 in interest. Now, if you choose a 30% down payment or $7,500 on the same loan terms, your monthly payment becomes $330.25, and you’ll pay a total of $2,314.80 interest. This can save you over $490 interest over the life of your auto loan.
5. Don’t Miss A Payment
This is perhaps one of the easiest ways to save money on your loan. However, it’s also understandable to be tempted to skip a monthly payment, especially when your budget can’t support it. But know that doing so can only extend your loan terms.
In addition, your lender won’t be happy about missing a payment, and you may end up paying fees for not paying on time, costing you more money. Missed payments are also not good for your credit score and may incur higher interest rates on your loan.
6. Opt for Automatic Payments
Consider signing up for automatic payment if your lender offers this option since it can help lower your interest rate and save money on loans. In line with the previous tip, setting up automatic payment ensures you won’t miss a payment. Banks and lenders usually prefer this because they’re more likely to be paid on time.
With payment automation, you’ll never miss or forget a payment date, avoiding penalties and eliminating the chances of defaulting.
Here are the most commonly asked questions on how to save money on loans.
Decided to Consolidate?
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Taking out a loan is a significant responsibility and requires smart financial decisions. Implementing the tips above can be a good place to start to help you fulfill this obligation, maximize your finances, and get more room in your budget. Making smart financial decisions to begin with is always the best way to not get into the habit of taking out loans in the first place. However life happens, and Insurdinary understands that. For over 10 years now we have been helping Canadians make better financial decisions with their loans, credit cards, mortgages banking and of course insurance products.
Having the right insurance products in place can save you tens of thousands of dollars in healthcare costs, save your family hundreds of thousands in after expenses, and even provide financial backing should you become temporarily ill. Have more questions? Circle back to our offering page. Prefer to speak to an agent, we can do that too! Our licensed professionals can be reached at 1-877-574-7475, or online by filling out this quick quote form.