For most individuals, home ownership is possible only after accepting a mortgage loan / kredit. In fact, a large percentage of adults will take out loans at some point in their lives to secure various possessions, including cars and even college educations. Since the practice is so common, it is imperative that those repaying loans have quality strategies in place to ensure successful loan repayment. Three clever tips include increasing or designating savings for loan repayment, automating loan payments, and making more than the minimum required periodic payment.
Savings Equal Quicker Repayment
We attempt to save money for many different reasons. If you happen to have a small (or large) amount of savings, especially in a low-interest account, it is a good idea to use a portion to pay towards outstanding loan debt. Though you will have less capital available, the savings you lay aside for repaying loans will help reduce the loan’s principal balance more quickly, helping you save money on the amount of interest repaid over the life of the loan. Moreover, the interest rate on the average savings account is typically well below the rate charged on borrowed funds. In other words, while repaying a loan, you will more than likely pay more in interest than you will gain through your bank’s savings/CD programs/ETFs.
Automate for Rebates
Most major credit card, car, and personal loan companies allow borrowers to save payment information online and use it to not only make recurring loan payments, but automate payments also. After initial setup, the borrower can rest assured that his or her periodic loan payment will be made on time and for the amount previously determined. Timely payments positively impact borrower’s credit profile and may aid in procurement of future financing. Further, loan providers and/or servicers sometimes provide a payment discount or reward program for borrowers who successfully utilize the company’s payment automation service. If using this tip, ensure that the payment account being used for automated payments has funds deposited before the anticipated payment withdrawal date. It is also advisable to monitor the account frequently to ensure the accuracy of your lender’s automation service.
Pay More to Pay Less
Along with setting aside savings or using currently held liquid assets to make loan payments, is the notion of paying more to pay less. Typical loans are amortized, meaning the loan’s principal and interest will be repaid in equal installments over the life of the loan, resulting in a zero balance after the last loan payment is made. If, however, you make more than the predetermined periodic payment, you will save money otherwise spent on interest and will pay the loan off much more quickly.