At a Glance
Anytime you take out a loan, you will be required to pay some form of interest on the balance that you have. This is how lenders make their money and it is unavoidable. Just because it is unavoidable, however, doesn’t mean you can’t find loan hacks for saving money on that interest.
In this article, you’ll learn:
Personal loan hacks to save money
Given that personal loans can come with high interest rates in some cases, learning how to save on interest can save you thousands of dollars over the life of the loan:
1. Make frequent payments
The interest you pay is based on the amount you have outstanding on the loan at a given point in time. The faster you repay that loan, the quicker the loan amount outstanding will drop. This means that you will be paying less interest the faster you pay the loan off. Be aware, though, that some lenders charge prepayment penalties if you complete all loan payments before the tenor is up.
2. Round up automatic debits
If you set your loan payment to be paid through autopay, set it to round up the payment. For example, if you pay $370 monthly for the loan, set it to round up to $400. This can add up over time and reduce the loan amount quicker, which will cause you to pay less interest.
3. Pay off your loan early
If you are in a position to do so and there isn’t a large prepayment penalty, pay off your loan completely earlier than required. This will reduce the amount of interest you pay completely by fulfilling your obligation to the lender.
4. Use balance transfer credit cards
In some cases, you may feel that the rate you are being given on a certain credit card is not fair or that it is overwhelming. Balance transfer credit cards are useful in that they allow you to transfer the debt from one card to a new card. In most cases, balance transfer cards come with an introductory 0% APR, which means you will just be paying the balance with no interest for a small period of time. Be aware that interest will resume once the introductory period, which is typically a year, ends.
Compare: Balance Transfer Credit Cards
5. Refinance or consolidate your loans
Of the many personal loan hacks that can save you money on interest, consolidating your debt is a great strategy. This involves combining your debt under one single lender and one single interest rate. This is particularly beneficial as it allows you to understand exactly how much you will owe monthly, and the new rate may be lower than some of the old rates you had.
Learn more: What is Debt Consolidation & How to Do It?
Generally, interest rates on personal loans will vary from 6%-36% depending on your credit worthiness, credit score, income level, and other factors.
If you do not have a strong financial standpoint, you may be charged a higher interest rate. Your credit score may be lower than the lender likes or your credit history may be tarnished. There are a number of personal loan tips that can help you save money on interest.
If you are in the financial standpoint where you can afford a personal loan at a competitive interest rate, they can certainly be a good idea for covering emergency expenses or any other purpose.