If you ever need a loan, you will likely have to pay off the amount you borrow over a series of months. This kind of loan, called an installment loan, is common when you buy a home, a car, or when you get a personal loan for financial needs. Paying off your loan every month can impose upon your finances if you don't have a plan in place to afford the extra dues each month. Here are 4 ways you can pay off your installment loan without interrupting your other financial obligations.
Choose the right repayment plan
When you get a personal loan, you often have the option of choosing how long you need to pay your loan back. The longer your repayment plan, the lower your monthly payments will be. Subtract your monthly spending needs from your income to determine how much 'extra' money you have leftover at the end of the month, and try to pick a repayment plan that fits into these funds.
Pay a little extra each month
Once you have your repayment plan in place, attempt to pay a few dollars extra each month to help cut down on your interest and lower your final payment over time. Even a few dollars each month can make a huge difference in cutting down on your loan.
Pay your loan off in full when you can
Every month you hold onto your loan you pay more in interest. For example, if you get a $1,000 loan at 10% interest over a year, then you will pay back $1,100 at the end of the year. If you can pay your loan back earlier due to a raise at work or a tax return, you will pay less interest. Even paying your loan off a month early saves you $10 in interest. Ask your lender if there is a penalty for paying your loan off early prior to attempting to do so.
Only borrow what you need
It may sound tempting to apply for a personal loan for more money than you need, but the more money you borrow, the more you have to pay back. Consider the absolute lowest dollar amount you need to borrow to accomplish your financial needs right now, and stick to that number. This will make your monthly payments cheaper, and allow you to stay on track to paying off your installment loan on time.
Getting an installment loan can interrupt your finances if you don't make plans to pay it off responsibly. Use these tips to help you pay off your loan without damaging your current financial situation.
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