Personal loans have become one of the most popular ways to borrow money from banks. This is partially due to the fact that most personal loans are unsecured and that the lenders do not restrict how the money can be used. Most individuals get personal loans in order to purchase vehicles, home appliances, to pay for medical procedures or expensive holidays.
Lenders will even allow borrowers to get multiple personal loans, as long as they qualify. Unfortunately, the fact that it is so easy to get a personal loan also means that most people tend to lose track of their financial obligations and borrow without paying attention to how much the loans cost.
Even though personal loans have relatively low interest rates, having to repay 2-3 of them at the same time can put a lot of stress on your finances. Luckily, there are a few ways to reduce their costs:
1. Use the money in your savings accounts
One of the easiest ways through which you can reduce the cost of your loans is to use the money in your savings accounts to pay them off. However, you will have to check the cost of early repayment.
This having been said, for this method to be truly effective, you must use your savings to pay off your most expensive loans first. Even if your savings are enough to only repay a single loan, by choosing the most expensive one you will mitigate a lot of financial pressure.
As for the loans that remain, you will be able to reduce their cost by using the methods presented below.
2. Switch to a less expensive loan or one that has a shorter term
Most lenders will allow you to get another loan that you can then use to repay an existing one. The objective here is to either get a loan that has a lower interest rate than the one that you are currently paying, or one that has a shorter duration. However, if you intend to use this method, you will also have to factor in the early repayment fee that the bank may impose.
3. Use the money from a line of credit in order to repay a loan
Lines of credit offer the advantage of only having to pay interest for what you borrow. If you already have access to a line of credit, check the interest that you are currently paying for the loan. This method is only useful if it is higher than what you would pay if you were to repay it using the money from the line of credit. You could also consider no credit check loans as an alternative.
4. Get a debt consolidation loan
Getting a debt consolidation loan is both easy and effective when it comes to reducing the cost of your existing loans. These usually have relatively low interest rates and can be paid over the course of 10-15 years. Although they may be more expensive to repay in the long run, they require smaller monthly payments.
5. Make extra payments to repay existing loans
While a loan may have an early repayment fee attached to it, you should still be able to make a few extra payments at no extra cost. This will allow you to repay it early, however, you won’t be able to completely return all the money at once. This method is usually better if you want to make a loan cheaper in the long run.
Generally speaking, the faster you repay a loan, the less money you will spend on it. However, if the repayment fee is too high, you can always mitigate the cost of a loan by either refinancing it or by consolidating your debt. The methods that we have presented can be used separately, but they are the most effective together. For example, it is better to use your savings in order to repay your most expensive loans and then to consolidate the remaining ones.