Best Ways to Pay Your Personal Loan Faster

Personal Loans

There are several ways to pay off a personal loan faster, obviously depending on current financial standings and opportunities.

Personal loans play significant roles in many South African’s financial lives and they can quickly become a burden on your shoulder.

In this article, we’ll look at various options for you to start implementing, to begin your journey to pay the loan faster.

Let’s review these options.

It’s important to review the terms of your loan and check with the lender before making extra payments to ensure that there are no prepayment penalties or fees.

Make larger payments

Making larger payments on a personal loan means paying more than the minimum monthly payment required by the lender.

When you make larger payments, more money goes towards paying down the principal balance of the loan, which can reduce interest charges and help you pay off the loan faster.

Here’s how to make larger payments:

  1. Check your loan agreement – Always review your loan agreement to ensure there are no prepayment penalties or fees. If there are, factor them in when determining the amount of the larger payment.
  2. Review budget – Look at your budget and determine how much extra you can afford to pay towards the loan each month.
  3. Contact your lender – Contact your lender to let them know you want to make a larger payment. Some lenders have specific instructions on how to do this, such as paying through a different payment portal or mailing in a check.
  4. Specify how the extra payment should be applied – When making a larger payment, it’s important to specify that the extra amount should be applied to the principal balance of the loan. This ensures that the extra payment goes towards paying down the loan balance instead of just covering interest charges.
  5. Monitor your progress – Keep track of your progress and make adjustments as necessary. If you find that you can afford to make even larger payments, consider doing so to pay off the loan faster.

Loan Refinance

Loan refinancing is the process of replacing an existing loan with a new loan that has different terms and conditions, usually with the goal of getting a lower interest rate, a different repayment period, or both. This can help reduce the total cost of borrowing and save money over the term/period of the loan.

Here’s how loan refinancing works:

  1. Evaluate your current loan – Review the terms and conditions of your current loan, including the interest rate, monthly payments, and repayment period.
  2. Determine your goals – Determine what you hope to achieve by refinancing your loan. This could include lowering your interest rate, reducing your monthly payment, or shortening the repayment period.
  3. Shop around for lenders – Compare rates and terms from different lenders to find the best refinance loan for your needs. Look for lenders that specialize in the type of loan you have and have a good reputation for customer service.
  4. Apply for the new loan – Once you’ve found a lender, apply for the new loan. You’ll need to provide information about your current loan and your financial situation.
  5. Review and accept the new loan – If you’re approved for the new loan, review the terms and conditions carefully to ensure they meet your goals. If you’re satisfied, accept the loan and close the refinancing process.
  6. Repay the new loan – Once the refinancing process is complete, start making payments on the new loan according to the new terms and conditions.

Keep in mind that refinancing can have both benefits and drawbacks, so it’s important to carefully consider your options before deciding to refinance your loan. It’s also important to note that there may be fees associated with refinancing, such as application fees or prepayment penalties on your old loan. Be sure to factor these costs into your decision-making process.

Prioritize high-interest loans

Prioritizing high-interest loans means focusing on paying off loans with the highest interest rates first.

This is an effective way to reduce the overall amount of interest you pay and pay off your loans faster.

Here’s how to prioritize high-interest loans:

  1. Make a list of your loans – Make a list of all your loans, including the interest rate, balance, and monthly payment for each one.
  2. Determine which loans have the highest interest rates – Sort your list by interest rate, from highest to lowest. This will show you which loans are costing you the most in interest charges.
  3. Focus on paying off the high-interest loans first – Allocate as much of your available funds as possible to paying off the loan with the highest interest rate. Make the minimum payments on all other loans.
  4. Continue to pay off high-interest loans – Once the first high-interest loan is paid off, move on to the next loan with the highest interest rate and repeat the process.
  5. Consider consolidation – If you have multiple high-interest loans, consider consolidating them into a single loan with a lower interest rate. This can make it easier to manage your debt and save money on interest charges.

By prioritizing high-interest loans, you can reduce the overall amount of interest you pay and pay off your loans faster. This can help you become debt-free more quickly and improve your financial situation.

Set up automatic payments

Setting up automatic payments is a convenient and easy way to ensure that you make your loan payments on time each month.

It involves setting up a recurring payment that automatically withdraws the amount due from your bank account on a specific date each month.

Here’s how to set up automatic payments:

  1. Determine the payment amount – Determine the amount of the payment you want to make each month. This should be at least the minimum payment required by your lender.
  2. Choose a payment date – Choose a date each month when the payment will be deducted from your bank account. This should be a date that works well with your cash flow and budget.
  3. Contact your lender – Contact your lender and ask about setting up automatic payments. They will likely have instructions or a form to complete to set up the automatic payment.
  4. Provide your bank account information – You will need to provide your bank account information, including your account number and routing number, to set up the automatic payment.
  5. Verify the payment information – Review the payment information to ensure that it is correct. This includes the payment amount, payment date, and bank account information.
  6. Confirm the automatic payment – Once you’ve completed the setup process, your lender will likely ask you to confirm the automatic payment. This ensures that the payment will be processed correctly.

By setting up automatic payments, you can avoid late fees and ensure that your loan payments are made on time each month.

This can help you stay on top of your debt and improve your credit score over time.

Just be sure to monitor your bank account regularly to ensure that the automatic payment is processed correctly and that you have sufficient funds in your account to cover the payment.

Cut unnecessary expenses

Cutting expenses is the process of reducing your spending in order to free up more money to put towards your personal loan.

Here are some steps to take to cut your expenses:

  1. Identify your spending – Make a list of all of your expenses, including fixed expenses (rent/mortgage, utilities, insurance, etc.) and variable expenses (groceries, entertainment, dining out, etc.).
  2. Analyze your spending – Look at each expense and determine whether it is essential or discretionary. Essential expenses are those that you cannot do without, such as housing and food. Discretionary expenses are those that are not necessary, such as entertainment and dining out.
  3. Prioritize essential expenses – Make sure that you are allocating enough money to cover your essential expenses. If you are struggling to pay for these expenses, consider ways to reduce them, such as by negotiating bills, shopping around for better rates, or cutting back on usage.
  4. Cut back on discretionary expenses – Look for ways to reduce your discretionary spending, such as by cutting back on dining out, entertainment, or shopping. Consider alternative options, such as cooking at home, having a game night with friends instead of going out, or taking advantage of free entertainment options.
  5. Look for ways to save on fixed expenses – Review your fixed expenses and look for ways to save money, such as by refinancing your mortgage or car loan, switching to a cheaper insurance provider, or negotiating bills with service providers.
  6. Create a budget – Once you’ve identified areas where you can cut back, create a budget that prioritizes your expenses and allows you to put more money towards your personal loan.

By cutting your expenses, you can free up more money to put towards your personal loan, which can help you pay it off faster and reduce the total amount of interest you pay.

Just be sure to make a realistic budget and stick to it to ensure that you are able to achieve your financial goals.