Many of us have loans and they can be very useful. We can take them out in all sorts of different forms form mortgages to credit cards and for lots of different amounts and different purposes. They can help us to afford to do a degree, buy a home or to go on holiday but sometimes they can be a source of concern because we have to find the money to repay them. Some people find this easier than others. There is no need for repayment to be tricky though as long as you follow some rules.
- Check repayments before you take out loan – it is really important to completely aware of how much you will need to repay when you get the loan. Knowing how much you will need to repay each month will allow you to be able to calculate whether this is something that you will be able to afford. You will need to take a look at your own finances and work out whether you would normally have enough money so that you can work out whether you will be able to afford them. It might be that you will have to come up with some sort of strategy so that you can afford them more easily. You might have to adjust the things that you are spending money on, which could be easier for some people than others. You may also need to think of ways to increase your income as well. It is really important to think about all of this before you take out the loan. Get a plan and make sure that you have got everything in order before you borrow any money. Then you will be able to be completely confident that you will be able to afford those repayments
- Plan for interest rate rises – if you have a loan with a variable rate then you will have to pay more money if the interest rate goes up. It can be tempting to just hope that it will not, particularly if you have a very short-term loan, but it is wise to be prepared just in case. Calculate how much your payments might go up if interest rates do go up and this will help you to work out whether you will be able to cope with this. Bear in mind that if you have other loans, such as a mortgage, you will also have to find the extra money to pay for those as well. It is therefore wise to imagine what you might do. It could be that you spend money on something such as a magazine subscription, that you could give up if necessary but do not want to unless you have to. Just identify something that you can do and then you will be able to cope.
- Prioritise repayments – it is really important to make sure that when you are paying for things that your prioritise making your loan repayments. To make that easier see whether you can have the payments go out of your account by direct debit just after you are paid. Then you will be sure that there is the money there for you when you need it. Also make sure that you do not spend too much the previous month that you go overdrawn as if you have too much of an overdraft your salary may be absorbed by that and there may not be enough left to pay the loan repayments.
- Ensure luxury spending is kept on track – it is wise that you are careful with what you are buying. We all buy necessities and luxuries and it is wise to make sure that we do not buy too many luxuries. It is good to stay within our means with regards to spending but even better to have some money left over each month so that we can build up some savings. The reason for this is that it is really handy to have a bit of money to fall back on. If we have this then it gives us a feeling of security and if interest rates do go up we will know that we will have some money just in case we find it difficult to manage that increase in costs.
- Overpay if you can – the priority with loans should always be to make sure that you can repay what is expected of you. However, you can reduce the cost of a loan by paying back a bit extra. Some lenders will charge you extra money if you wish to do this, so you need to check. It could be the case that you will be able to save money by repaying a bit extra every so often. It will mean that your interest charges will be lower and so the loan will be cheaper than if you just paid back the minimum expected.