For every loan type out there, from smaller installment loans to the largest mortgages or car loans out there, borrowers are always looking for ways to pay down their balances faster. The quicker you can pay down a given loan, the less interest you pay over its life and the faster you can resume directing funds toward other needs.
At 1st Choice Money Center, we’re proud to offer a variety of installment loans, from car title loans to signature loans and several other great alternatives to potential predatory payday loans. No matter which loan type you’re repaying, what are some handy ways to improve your pace and pay down a loan faster? This two-part blog will dig into several suggestions we can offer.
Understanding Details and Terms
For starters, it’s extremely important to spend time reading through all the details and terms of your loan before signing anything. You’re looking for a number of different areas, from the interest percentage being paid to the format used to calculate interest versus principal balance. A few specific areas to keep an eye on:
- Repayment terms: In most loan situations, your loan repayment terms will be calculated using simple interest, where your monthly payment and its interest are just based on the loan’s outstanding balance. If this is your format, you’ll have fewer interest payments to cover.
- Extra payment application: If you make any extra payments toward your loan, be sure to specify that the payments go toward the principal balance, not the interest.
- Penalties: Some lenders have prepayment penalties that raise a fee to compensate for interest payments they do not receive if you pay the loan down too quickly. Ask any lender in advance whether this is the case, and consider how this may impact your choice.
Most loans are paid back on a monthly basis, and here’s a handy trick for those making such payments: Instead of making a single monthly payment, make bi-weekly payments instead that add up to the same monthly amount. In the short-term, you’ll barely notice a difference – most months are around four weeks long anyway.
But over a period of time, you’ll actually be making 26 full-sized payments over the course of the year, rather than just 24. For long-term loans like mortgages, this sort of approach can save you significant interest and pay your loan off much faster.
If you have multiple debts you’re currently paying down, you should strongly consider a tactic known as snowballing. This is where you take all the funds you have available for debt payment for a given month, then apply them singularly to the highest-interest repayment you’re making (with the exception of minimum amounts required for other loan balances). This will help you limit your interest over time while paying down the most significant debts first.
For more tactics for repaying loans faster, or to learn about any of our installment loan products, speak to the staff at 1st Choice Money Center today.