Carrying out a repayment strategy for your loans

If you already have a pile of loans, consider carrying out a repayment strategy for your loans.

09:14 20 September 2013

Determine and analyse the total cost of the loan you are taking out including the accumulated interest you need to apply for a repayment, make a plan of your finances and carry out a repayment strategy for your loans as well as ensure you can afford to make payments.

What are the factors to consider in planning a repayment?

• Cost of Loan

The cost of your loan is influenced by the amount that you need to borrow and how long you intend to pay for it. For example, you may pay little interest, if you loan a small sum over a short term with a low rate of interest. Conversely taking out a huge loan over a considerably long period will cost you more.

• Loan Options

Consider all possible options before applying for a loan.  Study various repayment plans with different repayment periods before choosing which option is better.  Furthermore, paying as much as possible than what is due can save you money because you don’t have to pay additional interest.
 Be diligent to look for various deals and compare.  Carefully study each and every offer before making a choice. Moreover, beware of hidden charges. Every detail must be laid down for careful analysis. 

• Methods of Payment

1.    Regular payments

A regular payment is loan agreement where you have a fixed monthly amount.  However, if you decide to clear all the debts, you will be charged an early repayment fee. When you know exactly how much you pay, it will be easier to make a budget as you know how much payment has to be done every month and until when you need to make payments. There is no charge for early repayment for your loan provided you have an overpayment less than £8,000 in a year.

2.    Flexible Payments

Loan agreements where repayment schedules are more flexible because it reduces equated monthly instalments and lowers the risk of default. However, interest rates are higher and overdrafts could ask for an initial arrangement fee.

• Late Repayments

Avoid late repayments so that there will be no penalty as well as to avoid impairing your credit rating.