If you take out a loan – however big – you will pay interest. There’s just no getting around it.
The good news is, current interest rates are relatively low. There are still, however, a few ways you can make further savings on interest.
In this article, we’ll examine three ways you can cut your loan interest rates and enjoy more cash in your pocket. Let’s get started.
1. Make extra repayments on your loan
The more money you currently owe, the more interest you will pay over your loan period. Remember, you’ll even be paying interest on your interest. With that in mind, one of the best ways to save is to reduce the life of your loan. How? By making extra repayments whenever you can.
If this is a strategy you can afford, start by making extra repayments on loans with the highest interest rates. This usually includes credit cards and smaller loans. Once they are under wraps, you can move on to your larger, longer-term loans, such as your home loan.
It’s worth noting that under some loan agreements, you cannot make extra repayments without incurring a fee.
2. Consolidate high-interest debt
If you are looking to save, interest rates are a top priority. The lower they are, the more cash you can hide away for a rainy day.
If you are grappling with numerous high-interest debts, a consolidation loan may be the solution you’ve been looking for. Put simply, consolidating your debt means taking out a larger, lower-interest-rate loan and using it to pay off your higher-interest debt. You’ll be left with one monthly repayment instead of two, three, or more; a lower interest rate; and a suitable loan term, depending on your financial goals.
3. Improve your credit score
Your credit score has a significant impact on the loan products you are and are not eligible for. And if you have a poor credit score, you may be forced to take out a bad credit loan, which typically comes with higher interest rates.
So, if you are looking to save on your loan interest rates, improving your credit score can help. Here are a few ways you can make that happen:
- Pay your bills on time. Utility, phone, and internet providers report to credit bureaus, too, so be sure to always pay your bill before the due date.
- Keep your credit card balances low or at zero. Avoid maxing out your credit allowance.
- Avoid applying for too many loans at once. When a lender assesses your credit report, they make a note on it. If there are a significant number of these notes left on your credit report, your score can be impacted.
Once your credit score improves, you’ll have access to a broader range of financial products and services – including those with lower loan interest rates.