Loans

How to Pay Your Loan off More Quickly

It can often be a really good idea to pay a loan off early. You will be able to reduce the amount of interest that you pay and therefore gain financially and also lift the burden of having a loan from you.

Before you start you need to do some calculations. You need to work out whether you will be better off financially if you pay your loan off early. In most cases you will be, but there would be a few exceptions where this is not the case. You may be able to borrow at such a low rate, that you can invest the money that you have borrowed and make a profit. This is most common seen is endowment mortgages, when rather than paying back the mortgage, money is invested each month and this gains in value to pay back the lump sum at the end of the mortgage term. There may also be 0% finance deals which could be worth taking advantage of where you can borrow money for free, but you need to make sure that you pay it back so that you do not get charged.

Another important calculation is any early redemption fee or administration fees associated with early repayments. Some lenders will have a huge charge for this, particularly if you are tied in to a fixed rate of borrowing and it could be cheaper to stay with them than move or not possible to find the cash to pay the charge. A new lender may charge you for using them too, especially if you are swapping a mortgage as they may wish to do a survey and credit checks etc which they may charge you for so you will need to research that and take it into account.

Once you have decided that it will be beneficial to pay your loan off early then you need to find ways to free up the money that you need to do so. If you have savings, then it is probably better to use them to pay off the loan that keep them in a savings account. This is because most savings accounts pay out less interest than your will be charged for having a loan. It is worth checking this though, just to be sure. Any money that you regularly save, should be paid against the loan.

Then you need to consider whether you can increase those payments at all. You may be able to earn more money or spend less. There are normally ways that people can cut down on spending by cutting down on luxuries. It could be that they can buy less clothes, go out less, buy less luxurious food, reduce how much they spend on their phone or TV cut down on what they smoke and drink or things like this. The best way to choose where to cut down is to take a close look at everything that you are spending. Carefully see whether there are things that you buy that you could easily do without, spend less money on or would be happy to stop buying so that you can get out of debt more easily. You may be able to buy some things from different places in order to save money. Perhaps by swapping suppliers, brands or retailers you could still buy the same things, but just at a lower cost. You may be happy to go without some things, or you may not want to, but either way it is likely that you will be able to find some ways to save money. Earning more will be easier for some people than others. It all depends on how much time you have and where your skills lie. However, you may find that you can ask for more hours of work, take on a second job or find freelance work online which could help. If you put all of the extra money that you have earned and what you have saved form spending less against the loan, you will find that you can whittle down the amount bit by bit and it should be paid off fairly quickly. The more you pay off, the lower the amount of interest you will have to pay as it is charged on the amount of debt left and so the debt will become easier to pay off with time.

Credit Cards

When is a 0% Credit Card a Bad Idea

A 0% credit card can sound like a really great opportunity. You will be able to have a free loan which you can use for whatever you wish. You can take advantage of not having to make more than a small repayment each month and have the money for free.

It all sounds fantastic, buy now and pay later and in the meantime no interest. However, the bank does not lend for free forever, they want to make a profit from you and this is where a 0% can trap you. Once the 0% period is up, they will start charging you interest and this can be extremely high. You could find that it is very much higher than a conventional credit card as well and it could mean that you end up paying far more in interest than you would have, had you had a conventional one. It may not be that easy to pay off either, switching the debt to another credit card can often came with a balance transfer fee.

Another problem with a 0% card is that it is really tempting to spend as much as you can on it. Take full advantage of all of that free money. This is perfectly fine if you put money away so that you have enough in savings to pay off the credit card once the interest rate goes up, but most people will not think of doing this. There is also the risk that even if you do save the money, you may need extra money, use those savings and then not have enough saved up to pay it off. So you could end up buying all sorts of things that you do not really need, thinking that you are getting a great deal, but end up not being able to pay off the debt and needing to pay a lot of interest on them.

Some people are better with money than others. You may know whether you are or not, based on past experiences or you may not be sure. Consider if you had a 0% credit card how you would use it. Would you treat yourself to all sorts of amazing things or would you carefully use it to buy essentials and save the money you would have spent to pay the card off before the 0% period ends? Doing the second option is obviously the most sensible, but most of us are not that self-disciplined with money and are likely to see the card as a bit of a windfall and have a bit of fun with it. It is really worth considering what you are likely to do and whether you will use it wisely.

If you do not really need to borrow money, but just are tempted by getting the card, then this is not good. Unless you have plans on using it sensibly and perhaps were planning on borrowing money anyway and saw this as a good way of doing so, it is best to leave it alone. You may of course decide to use it instead of your current credit card and in the meantime get what is owed paid off your current card. This could work out, but you will still need to find the money to pay off the 0% card and the interest will be high if you do not pay it off before the 0% period ends. Therefore you really need to give some time to decide whether this card is the right thing for you or not.

So it is worth thinking hard before applying for a card like this. Make sure that you think hard about why you want it, how you will use it, how you will pay it off and whether it will be cheaper for you to find a different way to borrow money or in fact whether borrowing is the right thing to do at all. Try not to be tempted just by the good rate but consider the consequences of getting it and what will happen when the rate goes up and how you will manage the repayments. It could even be worth discussing with a financial advisor before you fully make up your mind.

General

When is the Best Time to Get a Loan?

Getting a loan should never be an easy decision. You need to consider whether you really need the money and whether you will be able to pay it back. When you choose to get the loan can be crucial both with regards to the economic situation and your lifestyle as to whether repaying it will be easy or hard across the full term.

It is not always easy to judge when the best time is to get a loan. Predicting what may change in the future can be almost impossible, but you can make some estimations as well as looking at the current situation. For example, if you are planning a family, then you know that your costs will go up and so it may make a loan difficult to manage or interest rates are very low, then they will be likely to go up and this could make the repayments harder in the future.

It is worth making sure that you start by considering every type of borrowing. It isn’t just mortgages or personal loans, which should be thought hard about but also credit cards and overdrafts. They all cost money and will need repaying and you need to consider whether you are in the right position financially and whether the economy seems in the right place for you to risk borrowing the money.

You should start by considering your currents situation and whether you feel that you would be able to manage the repayments. If you cannot then a loan is not a good idea. If you can manage now, calculate how much you could afford for repayments to go up by before you would struggle. Then calculate how much interest rates would have to rise for the repayments to be this high and work out how likely this is. Remember that as inflation will go up too, then you may have less disposable income because prices will rise and there is no guarantee that you will get a pay rise.

It is easier to predict what might happen to you financially than it is the economy. It can be best though to plan for the worst in both situations. Imagine that the interest rates rise a lot, you do not get a pay rise or worse, lose your job and think about how you might manage. This will be more relevant if you have a longer term loan than a shorter term one. It is easier to predict the short term as you know what your job security is like and that there will not be major changes in the economy in a short term.

It is worth thinking about your future as well and how well you think that you will be able to cope with repayments then, especially if it is a long term loan that you are borrowing. Consider whether you will be thinking of having a family, retiring, buying a home, travelling or things like that that will have either a big impact on your income or on your spending. Having a long term loan could tie you down to having to work so that you can manage the repayments; it may restrict your ability to get a mortgage and may mean that you cannot afford to start a family.

In conclusion, there is never really a good time to get a loan because the future is so unpredictable. However, it is best to calculate your repayments and think hard about whether they are something that you can afford now and whether you will cope if they go up or your income goes down in the future. It is safer if you have more than one income in the household as the loss of a job will not be so devastating. Consider your plans for the future as well to consider whether these may be affected by loan repayments. It is therefore always worth considering whether the loan is a good idea at all. Think about what you need the loan for and whether you would be better off saving up towards it rather than borrowing the money or delaying the purchase until you are really sure that it is a good time to borrow. You may find that if you delay, you may even change your mind about having it after all.