The good news is that the interest rates on personal loans are generally lower than they have ever been before. Even short-term lenders like Wonga now offer loans that are much more affordable than they were just a few years ago. But you might be surprised to learn that even after a loan has been agreed, it might still be possible to reduce the cost of your loan.
In this guide, we’re going to take a look at the different strategies you could employ to reduce the cost of unsecured personal loans.
- Pay off the loan with savings
If you have savings or receive a lump sum during the term of the loan, it almost always makes good financial sense to use that money to repay the loan as quickly as you can. You should always check that the early repayment charges aren’t too high and be sure to pay off your most expensive loan debts first. Even if you’re unable to repay the loan in full, you’re likely better off in the long run by repaying as much as you can, as soon as you can.
- Switch to a shorter or lower interest deal
If you don’t have the savings to repay all or a good proportion of the loan, you might be able to access a loan with lower interest rates or a shorter term that you can use to repay the existing loan in full. If you agree a loan with a shorter term, your monthly repayments will increase, but over the longer term, you’ll save money in interest by repaying the loan more quickly.
You just need to check you can afford the higher monthly repayments before you switch and be sure to calculate the total cost of the loan very carefully, including any set-up costs and early repayment charges. This loan calculator will help you explore whether you could save by switching.
- Consolidate your debts
Some loans are specifically advertised as debt consolidation loans, which are products designed specifically to merge multiple loans into one. There’s no guarantee that debt consolidation loans will be cheaper than paying off multiple loans individually, particularly in the long-term, so do your calculations carefully. Debt consolidation loans are now more difficult to access than they were, and as they’re usually secured against your home, they should only be considered as a last resort.
- Pay off loans with credit cards
If you have a good credit score and are disciplined when it comes to making debt repayments, there could be a low-interest balance transfer credit card out there for you. Sometimes known as ‘super balance transfers’, this type of product will transfer money directly to your account so you can repay the loan. These deals come with a fee, so it’s important you calculate whether a balance transfer credit card is a viable option for you. You must also check that you can repay the loan in full before the zero or low-interest rate runs out and the higher rate kicks in.
Have you managed to reduce the cost of an existing loan? What product(s) did you use? Please share your thoughts in the comments section below.