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When paying off a simple interest loan, understanding how it works is essential. When you do your loan repayments right, you get the chance to save on interest rates and other fees in the process. A lot of lenders these days offer simple interest loans and it helps to learn more.
What are Low-Interest Loans?
A simple interest loan is made up of two essential parts- the interest and the principal. The principal is that amount that is borrowed and the interest is what’s charged on you for borrowing the principal. For loans like these, interest rates are calculated on a daily basis based on the outstanding principal.
This is why during the early stages of paying off the loan, you are paying a higher interest because you have a higher loan balance. The interest rates dips as you pay off more of the loan since the payments are deducted from your outstanding loan balance. It is precisely because of this that borrowers get a chance to save more money when paying off the loan and even an opportunity to get it paid off quicker.
How to save when paying off a simple interest loan
Choosing to pay early is one way of saving money when paying off a simple interest loan. Making the payment before you are due ensures that you accrue less interest in the process. More of the payment you make will go to the principal too.
It helps to pay more often. Instead of making just one payment every month, you can choose to pay two payments or even more monthly as long as your income allows it. This reduces what you are paying for interest considerably. This helps you pay off the loan faster as well. Pay more if you can. Topping up your monthly payments or paying an additional lump sum is not a bad idea. This will help reduce the principal loan amount considerably. It is also one way for you to save on the interest costs.
Avoid paying late. Late payments will only mean having to pay more on the interest while the loan balance remains the same. Paying late all the time is also likely to result in more payments slapped against you such as penalties and late payment charges. You might even have to pay an additional payment by the time the contract ends.
Follow these tips to pay off your simple interest loan faster.
It depends. Negotiating for loan interests is a 50/50 gamble that may or might not work out to your advantage. In most cases, lending companies don’t allow you to negotiate the terms of your loan. There are always exceptions to the rule, though. If you’re trying to negotiate for lower interest rates, here’s what you ought to know:
Things to Know When Negotiating Your Interest Rates
· The bulk of it depends on your credit score. If you’ve ever tried to apply for a loan with a bad credit score, you’d know that it can be nearly impossible. The same can be said if you want to negotiate for lower interest rates. If you’re lucky enough to have an excellent credit score, you also get the perks of being able to negotiate your interest rates. Sometimes, you even get the additional benefit of being able to devise a payment scheme that works best with your budget.
· The choice of company matters. While many lending companies refuse to negotiate when it comes to interest rates, there are others who will. Lending companies that specialize in short-term loans or personal loans may often work with you on a doable interest rate and repayment scheme. If you want to be able to plan out your loans to suit your financial capability, personal loans is the way to go.
· Take advantage of holiday offers – some lending companies will offer negotiable interest rates during peak seasons or holidays. If you want to avail of such a thing, grab the opportunity whenever it presents itself.
Always remember to compare rates and to choose the lender that gives the best deal to suit your needs.