These personal loan hacks will save you plenty
Use these simple easy hacks on your personal loan to save yourself heaps of cold hard cash. These hacks don’t involve anything shady, you’re not cheating your lender out of a single dollar. You’re merely playing smart in order to pay your loan off as cheaply as possible.
Making payments more frequently can reduce your balance faster
This hack isn’t so much about making personal loan savings as just getting it paid off faster. Pay your loan off every two weeks instead of every month because you’ll be paying the same amount each month, but by the year’s end, you’ll have snuck in an extra payment.
Think about it; there are 52 weeks every year, so you’ll have made 26 payments if you pay every two weeks. If you tot up all the “extra” days of the months (apart from February, of course), then that’s the equivalent of an additional two weeks. Otherwise, you’ll be making the equivalent of 24 fortnightly payments. These two extra payments make quite a big difference, reducing your principal and therefore your interest burden.
How much you could save
On a $20,000 unsecured loan at 15 percent p.a. over 10 years, your monthly payment would be $322.67. At the end of your loan term, the total amount paid will be around $38,720.39.
If you made fortnightly payments of $161.33, you’d only have to repay $15,222.81, saving $3,497.58, assuming there’s no charge for early repayment.
Round up your direct debits
If you’ve set up a direct debit to pay your loan, then why not bump it up by just a fraction. Your fortnightly repayment is $161.33, but if you round it up to $165.00, you’re shaving even more off that balance each year without really feeling it – it’s the cost of a coffee every two weeks. You are, however, paying an additional $95.42 off your principal amount each year. This is almost $100 that won’t be generating any interest ever again.
If you have two or more loans, consolidate them
You can get lazy, paying the same old amounts each month, especially if you’re paying them by direct debit. It can feel like too much hassle to head to a comparison site and look for a refinancing or consolidation deal. It’s not, though, because by taking the time to compare personal loans you could find a much better interest rate and have just one payment coming out every fortnight.
How much could you save?
For that $20,000 unsecured loan with 15 per cent p.a. and the ten–year term, finding a new deal can save lots of money. If you’ve already paid off $10,000 on the loan over five years, by refinancing the remaining $10,000 — at 12 per cent p.a. for four years, you’ll pay $2,341.19 in interest rather than $2,952.28.
Do a balance transfer onto a credit card
This is great for when you’re in the final stages of a loan repayment as you can transfer the balance of your loan onto a credit card, which may allow you an interest free period of up to 24 months.
Do the maths first, though, as you need to make sure the remainder of the loan is paid off during the interest free period to get the full benefit. You’ll also have the benefit of a new credit card with (hopefully) a glowing credit history on it by the time the loan is fully paid off.
You need to remember, though, that the interest free period might only apply to the transferred balance and not to any new purchases that you make. It’s also prudent to know what your interest rate will be when the interest free period ends.
What you could save
That $20,000 loan is now down to $4,000, including any early repayment fees you might pay because you’ve used all the other hacks. By transferring this remaining balance to a new credit card with a 24-month zero interest period, you could save around $600 or so in interest.
Pay off your loan early
When you borrow money from a lender, they expect you to pay a certain amount in interest because that’s how they make their money. If you pay a loan off early, while the lender gets the money back and is no longer facing the risk of you defaulting, they’re also not getting the amount of interest they agreed to. This means that many lenders will apply early repayment fees to your loan so that they get that little bit more of what they wanted.
On the other hand, some lenders don’t apply these charges, or they have a sliding scale so that paying off the last few months of a loan early involves a nominal fee.
If your lender charges no, or only minor, early repayment fees, then you could budget and do the maths to save hundreds of dollars in interest.
How much could you save?
It depends on how early you pay the loan off and how much the balance was. You don’t have to wait until the end stages of the repayment; if you have a windfall, you could pay off a chunk in one go and reduce the remaining time left on it. Talk to your provider to see what you could save if you make a big overpayment – it could be in the thousands, especially if you look for refinanced personal loans online afterwards.
Compare personal loans from all of Australia’s major banks, credit unions and other lenders here.