How Can I Minimize the Interest I Pay on My Signature Loans?

by Mack Bartlett

Wouldn’t it be great if we could all just pay cash for college, cars, and even houses? Well, that would be great, but instead we have the ability to borrow money to pay for these big ticket items.

When we borrow money to pay for a house, we take out a mortgage loan. not only do we get to pay back the amount we borrowed, but we owe much more in interest. In fact, as you begin to pay off your loan, you will notice that most of your payment is simply paying for interest.

A small amount is being put towards the principal, or the original amount of the loan. Many people wonder how they can pay off the principal amount of the loan sooner than originally planned and there is a way.

When trying to pay as little interest as possible, there are a few options to look at. You might consider talking to your lender about making bi-weekly payments in stead of monthly payments.

You lender will have you send in a payment every two weeks, instead of every month. This may not seem like much of a difference, but with this set-up you will end up making 13 payments instead of 12 over the course of the year.

Some lenders may require a fee to set up this system. In the long run, you could end up paying off your 30 year mortgage loan in around 24 years instead. If your lender is not willing to allow this, you can simple send in an additional payment sometime during the year.

Another option is to set up a system similar to those that are trying to eliminate all kinds of debt. In addition to making at least the minimum payments on all of your debts and loans, you will need to put every extra penny towards your loan with the highest interest rate.

A budget is a great way to look at your income and your spending habits. By creating an actual budget you can decide which areas can be cut out or changed to allow extra loan payments to take place. You may be able to cut down on entertainment and eating out, and be able to make that extra payment for the year.

If you enjoy a holiday bonus or a tax refund, you can apply that money directly to your loan as well. Always remember that when you make an additional payment to your lender you write “apply to principal” so that your extra cash won’t be held until your next payment is due.

If you are taking out a mortgage loan you should consider making a down payment or paying points. This means that you can eliminate paying interest by paying for it up front. Some lenders might require you to pay a certain percentage of the loan in cash, also known as points.

You should always consider starting a savings account, whether it be big or small it is always a good idea. By using your savings in stead of borrowing money, you eliminate paying interest altogether.

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