Personal loans make borrowing easier, but it is important to plan for their repayment. (iStock)
Personal loans can be useful to cover a large planned expense, such as a home improvement, or an unforeseen financial emergency that might arise. Navigating the personal loan application process and getting approved is the first step. The second is to create a strategy to pay off what you have borrowed.
Whenever you are considering opening or making any changes to your personal loan, always be sure to do your research. Credible is a great place to start. You can view different personal loan options, compare rates, and more. Click here to learn more about personal loans directly from the experts.
5 tips to help you better manage your personal loans
Here are five tips that can make managing personal loans easier.
- Budget for your monthly payments
- Keep an eye out for refinancing opportunities
- Define your payment schedule
- Automate to avoid late payment fees
- Beware of prepayment penalties
PERSONAL LOANS: EVERYTHING YOU NEED TO KNOW
1. Budget for your monthly payments
Budgeting can go a long way in the successful management of personal loans. A good time to create a budget is before applying for a personal loan. This way you get an idea of how much you can afford in terms of monthly payments.
With Credible, you can enter your desired loan amount and see if it fits your budget. you will be able view and compare personal loans including interest rates, repayment terms and more based on your credit profile.
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When you already have a personal loan, you can still use budgeting to your advantage. Review your current spending to see how much you have left each month. Then add the monthly payments of your personal loan to this amount.
Yes your monthly loan payments would put you in the red, this is a sign that you will have to cut spending in other areas to stay under budget. If you still have room in your budget, then you can decide whether you want to use that extra money for your loan, send it to savings, or use it to fund other financial goals.
2. Keep an eye out for refinancing opportunities
Refinancing your personal loan might make sense if it gets you a lower interest rate. Lowering your loan rate can save you money on interest and could also lower your monthly payments, which can make budgeting easier.
Taking the time to shop around can help you find the best refinance rates. You can visit Credible to compare loan rate options from several lenders in one place, without affecting your credit score.
Before you refinance, do some basic savings calculations to see how much you could save in interest and how much your new loan payments could be. You can use online personal loan calculator on the internet to estimate your monthly payments.
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3. Define your payment schedule
Some personal lenders may give you a specific due date to make monthly payments. Others may let you choose your loan repayment date.
If you have the option to choose your due date, think about what works best for your budget. If most of your larger bills are due around the first of the month, for example, you might want to schedule your loan payments to be due around the middle of the month.
Being able to choose your due date gives you some flexibility. But if your lender doesn’t offer this, you may have to go back to your budget to figure out how best to allocate your paychecks to cover your payments.
4. Automate to avoid late payment fees
Automating your personal loan payments is convenient and can save you money as well. Putting payments on autopilot means you don’t have to worry about paying on time or triggering late payment fees. You also don’t run the risk of causing damage to your credit score by having late payments on your credit history.
Make monthly personal loan payments automatically can also give another benefit if you are able to get a discount on the interest rate. Some personal loan lenders offer a reduction in the interest rate for signing up for automatic payment. This could make a significant difference in the total interest you pay over the life of the loan.
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5. Beware of prepayment penalties
If you’ve made a commitment to budgeting, you may be able to prepay your personal loans. Prepaying can save you money in interest over the life of the loan, but it’s important to know if you’ll be penalized for it.
Some personal lenders charge prepayment penalties for prepay loans. This penalty is designed to help the lender offset interest that they will not have to charge. Before paying off your loans for good, read the fine print on your loan documents to see if a prepayment penalty applies.
For more information on personal loans – or if you’re ready to take out another personal loan – visit Credible, which instantly compares personal lenders and rates.
Do’s and don’ts of early repayment of your personal loan
Look carefully for personal loans
If you are considering a personal loan for debt consolidation or any other loan purpose, start with the basics. Compare the loan amounts you could borrow, the interest rates and fees offered by different lenders. Also, consider whether it makes sense to apply for secured loans or unsecured loans, based on your credit history.
Visit an online marketplace like Credible can help you find the right loan option. Once you have done this, you can formulate a plan for managing the personal loans that you decide to take out.
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