You’re looking to buy a house or car but don’t want to get ripped off on the loan. We feel you. Taking out a personal loan is scary and confusing. But have no fear – this blog post discusses the step-by-step process to save money on your next loan. We’re exploring at strategies like comparing interest rates, negotiating with lenders, improving your credit score, and more.
Whether you’re a total newbie or have taken out personal loans before, you’re going to learn insider tips to slash costs and get the best terms. Buying a house or car is exciting, but loans don’t have to cause money stress. With the help of this article, you can enter the loan process feeling savvy, confident, and ready to keep more cash in your wallet. Let’s start!
Compare Different Interest Rates
Interest is literally money out of your pocket, so finding a lower rate can save you hundreds.
Shop around at different banks and credit unions to compare their rates. Even small differences of 1% or less can add up to big savings over the lifetime of a long-term loan like a mortgage.
Private Lenders vs Banks
Private lenders and smaller banks sometimes offer lower rates than large commercial banks, since they have lower overhead costs. Check both to find the best deal. Some credit unions offer very competitive rates as well, since they’re not-for-profit.
Fixed vs Variable Rates
Fixed-rate loans have interest rates that stay the same over the life of the loan. Variable or adjustable-rate mortgages often start lower but the rate can increase over time. Consider your timeline and risk tolerance to choose the right option. Variable rates may save money in the short term but could end up costing more if rates rise a lot. For long-term stability, fixed rates are probably your safest bet.
Your Credit Score Matters
The higher your score, the lower your interest rate will probably be. Check your credit report for any errors before you apply for a loan. Whether you’re dealing with secured or unsecured debt, focus on existing debt repayment like credit card debt to improve your score. Even making the minimum payment could help you qualify for a reduced rate as well as squash your debt faster. So go polish your credit!
With interest rates, every point counts. Do your homework, improve credit, and shop around at different lenders. Negotiate the best deal you can – it will save you money for years to come.
Negotiate Fees and Closing Costs
Negotiating the fees charged by your lender can save you a bundle over the life of your loan. Many lenders charge an application fee, origination fee, and processing fee, which often add up to over $1,000 total. Check if any of these fees can be waived or reduced, especially if you have a good credit score. Even shaving off $500 can make a difference.
Check For Hidden Fees
Some lenders also charge “junk fees” such as document preparation fees, underwriting fees, and wire transfer fees. Make sure you understand all the fees involved before you sign on the dotted line. Ask why each fee is charged and how much is standard. Fees of over 1% of your total loan amount are too much. Don’t be afraid to negotiate – the worst they can say is no!
Bargain For a Lower Interest Rate
Your interest rate has the biggest impact on how much you’re going to pay over the life of the loan. Even reducing your rate by 0.5% could save thousands of dollars. Check if the lender can lower the rate, especially if you have an excellent payment history and credit score. Mention rates you’ve been offered by competitors to strengthen your case. If they refuse to budge on the rate, push for lower fees instead.
Every dollar saved on fees and interest charges adds up to major savings. By doing your homework, assessing standard rates, and negotiating the best deal, you can make your loan much more affordable and keep more money in your pocket each month. The time you spend upfront negotiating could give you a lifetime of financial benefits.
Make Extra Payments When Able to
When you can afford it, make extra payments towards your loan principal. Even small, additional payments can shave months or years off your loan repayment term.
Pay Biweekly Instead of Monthly
If your budget allows, make payments every two weeks instead of once a month. There are 52 weeks in a year, so biweekly payments mean you’re making 26 half-payments each year. That adds up to the equivalent of one extra full payment per year.
Round Up Your Payments
Most lenders allow you to set up automatic monthly payments that take money from your checking account or savings account. When you enroll in auto-pay, consider rounding up your payment amount to the next $40 or $50 increment. The extra few dollars may not seem like much each month, but over the lifetime of your loan those rounded-up payments can amount to thousands of dollars less in interest charges.
Make a Lump Sum Payment
If you receive a bonus, tax refund, or other windfall, put that money towards your loan principal. Making a one-time lump sum payment of $500, $1,000 or more can make a dent in your principal balance and interest charges. Just be sure to specify that any extra payments should be applied to the principal and not counted as your next monthly payment.
The less interest you pay over the life of the loan, the more money stays in your pocket. Making extra payments requires discipline, but can be very rewarding. Start with small changes to your budget and payment schedule, then increase the amounts over time as you’re able. Every dollar applied to principal means less interest paid. Keep chipping away at it and watch your loan balance drop faster than you expected!
Tax Deductions to Reduce Interest Costs
One of the smartest ways to save money on a loan is to take advantage of tax deductions on your interest.
Mortgage Loan
If you have a mortgage on your home, you can deduct the interest you pay each year. This mortgage interest deduction allows you to subtract a large portion of your interest payments from your taxable income. For most people, this results in a lower tax bill or a bigger refund. The amount you can deduct depends on factors like the type of mortgage you have and how long you’ve had it.
Student Loan
Making student loan payments? The interest on those loans may be tax deductible too. You can deduct up to $2,500 a year in interest paid on student loans. This includes loans for yourself, your spouse, or your dependents. To qualify, the loans must have been used to pay for higher education expenses like tuition, fees, room and board, and books.
Business Loan
If you own a business, the interest on loans you take out for your business may be fully tax deductible. This includes interest on lines of credit, vehicle loans, equipment loans, and commercial mortgages. To deduct the interest, the loan must have been used to purchase assets for your business or keep the business running. The tax deduction for business loan interest can help lower your business’s tax burden and reduce the overall cost of borrowing.
Saving Money? Apply to EASY Wireless' FREE Phone Plan
Saving Money? Apply to EASY Wireless’ FREE Phone Plan
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