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When you’re new in borrowing money or on loans in general, interest concepts might be confusing for you like the daily simple interest and more.
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Understanding Simple Interest Loans
When making a payment on a simple interest loan, your payment goes first to the interest, while the rest goes to the principal amount. The interest never accrues because you’re paying the months’ interest in full first before the principal amount.
To further understand what a simple interest is, here’s an example. Let’s say you got a car loan of $15,000 with an annual 5-percent interest rate. If you’re due for a payment on the 1st of May and you make the payment on that exact date, the lender would calculate all of your interest in the month of April which is $61.64, But if you pay on the 21st of April, the lender will only charge you for 20 days of interest, making the total $41.09, a $20 savings.
How to Pay Off a Simple Interest Loan Faster
Make bi-weekly payments.
Before doing this, make sure to consult your lender first if such options exists. Other lenders might penalize you for doing any extra payments.
By paying half of your monthly payments every two weeks, you will accumulate less interests. And if you do this consistently, it will take off a few months of the duration of your loan.
Round up your payments.
An example of this would be, if your monthly payment is $265.12, you round it up to $300, that is an extra $34.88 every month. That would add up quickly, which will enable you to save money on the interest.
Find extra money or generate extra income.
If you get a part-time job, or sell things that you don’t need anymore, it can go a long way in paying your loans. Although it’s just for small amounts, it will add up, taking off a considerable amount on your loan.
Make an extra payment.
If you don’t have the discipline for bi-weekly or rounded up payments, you can get the same results by paying an extra payment a year. A good way to get the funds for an extra payment would be from your tax returns.
Refinance your loans
If you have an excellent credit, you can try and approach a bank or other lenders to refinance your loans. Some lenders offer loan refinancing with super-low interest rates which enables you pay off your quickly and save more.
Making It Easier To Pay off Your Debt
When you take out a loan, you are given its terms and conditions before you sign the agreement. Lenders have the figures calculated to ensure that you can afford the amount involve. While it is true that you are bound to the loan’s terms and conditions, you might find yourself in a situation which will make it harder for you to get your obligations paid on time. When this happens, you might want to consider ways that you can lower the loan payments that you are making.
Negotiate with your lenders
If you are finding it hard to get your payments done on time, it is best to talk to the lenders and inform them of your situation. Instead of you having to pay late or not paying enough each time, you can choose to negotiate with them by paying them a figure that you know you can afford conveniently. Yes, there are downsides to this such as your loan term getting extended or you getting charged more for interest, but if this means making your payments on time and not ruining your credit record in the process, it is well worth a shot.
Do a balance transfer
This works if you have a good credit rating. You just need to sign up for a balance transfer credit card where you are likely to get charged with a lower or in some cases, even 0% interest rate and can be a good option towards a more affordable loan repayment. There are fees attached to this method though so check with your credit card provider first to find out how much you can potentially save.
Consolidate your debt
If you have more than one loan that you are currently paying off every month, it can help to have it consolidated. This is where you take a debt consolidation loan that is enough to cover the total of all your debts combined and then paying everything off. This means that you will only need to pay one single loan and one single interest rate every month. You will need to have a good credit score in order to be approved for one though. At the same time, interest rates may be a bit higher. You’re more likely to save more by paying just one single interest rate for a single loan instead of several. When consolidating, you can also get a home equity loan, a personal loan or a refinance.