Even if you will attract some extra charges, you could end up saving more if you repay your personal loan early or if you move it. There are other ways in which you can reduce the cost of your personal loan, such as the ones indicated below.
Use your savings to repay the loan
As long as the early repayment charges are not too high, it is advisable to repay the loan using your savings and always start off by paying the most expensive loan.
Low interest rates or short repayment loan
In case you do not have enough savings to offset your loans, you can consider moving your loan to one that has low interest rates or one that will require you to pay within a short period of time. The shorter period loan means that you will pay higher monthly instalments so just make sure you are in a position to afford this before moving.
Consolidating your debts
When you have exhausted all your options, then you can consider consolidating your loans whereby you merge all your small loans and debts into one. You should be very careful when taking this option because the consolidated debt is secured against your residence. The interest rates are low and therefore they are very appealing and your also risk losing your home in the event that you are not able to make the payments as scheduled.
Using credit cards to pay loans
Depending on your personal financial discipline and credit score, it is possible to get low interest or interest free credit card deals in which the money is transferred directly into your bank account and you can then use it to repay your loans. The move to this credit card deals comes with some extra cost and you should evaluate the financial sense of this option before making the decision to move.
Your lender should allow you to make overpayments with your monthly instalments so as to complete paying your loan sooner thereby cutting down the overall cost of the loan. You need to inform your lender if this is the option you will take as you cannot just drop in some extra cash with your instalment without notifying them first, unless it has been clearly stated in the agreement. It should be in a written notice which should be honored within 28 days.
Make a claim on your Payment Protection Insurance (PPI)
As with most financial establishments, your lender will sell to you payment protection insurance together with the loan you had applied for or the credit card. In some cases. You may not even know that this happened and therefore you are not in a position to claim for it. It is usually a costly package and as soon as you discover that it was part of the deal, you have the right to claim back for a full refund.
It is important to check with your lender what the costs of your personal loan are so that you can avoid paying so much or even paying for things that you may not really need.
Reducing personal loans costs
You could end up saving more money by either moving your loan or making the full payment ahead of schedule, even though this could cost you a little more.
You can consider using up the savings in your account to offset any costly loan you owe. However, confirm the early payment penalties are not too much.
You can move your loan to an option that charges low interest rates or one that has a shorter payment period. This option is better for a person who may not have any or enough savings to offset the entire loan all together. Moving to a shorter repayment period means paying a little bit more per month but you end up saving on interest.
The penalties charged for early loan payments are set at a specific limit by the government, but there are additional costs that come with moving a loan and you should ensure that the overall expenses do not end up being too costly.
Should you feel that the financial institution is treating you unfairly as far as paying back your loan early is concerned, you should raise a complaint with the bank as the first step. If you still feel unsatisfied with how they handle this complaint, then raise it up with the Financial Ombudsman.
Consolidating your debts is also another option of reducing the cost of your personal loans. In this case, you bring all your debt together as one instead of having several scattered loans. This should however be considered as a last option of saving costs on your personal loans. Debt consolidation is an appealing option mostly due to low interest rates but could end up being more expensive and the risk of losing your home is much higher especially if you are not able to make the payments as scheduled.
Once you choose to consolidate, you should set a plan for making the payments and stick to it.
You can also consider paying off your loan by using your credit cards. This will work out well especially if you have a good credit score since you can easily get low interest or interest free balance credit card transfer deals where money is directly deposited into your account. However, there are costs associated with such deals, commonly referred to as ‘super balance transfers’ and you need to check whether it makes any financial sense to use this option.
Incurring extra costs to repay your loan early is another viable option. In this case you can make some additional payments so as to pay off the loan earlier and reduce the long term costs. However, you need to discuss it with your lender before settling for this option. Once you have come to an agreement, you will be required to give your lender notice of overpayment and make the payment with 28 days of the notice. You should carefully read the terms and conditions of your loan contract before considering this option.
Make a claim for the payment protection insurance (PPI)
Borrowers can easily access payment protection insurance premiums which many lenders are now selling together with credit cards and loans. In most cases, you may not be aware that this product was sold to you but once you discover that this was the case, you have an entitlement to get your money back.