Personal loans are one of the go-to financial solutions for many cash-strapped individuals. They’re renowned for their flexibility and accessibility. As their name implies, they can be used to fund any personal financial expense, be it medical expenses, big purchases, home improvement, business capital, or even debt consolidation. 

They’re also popular for being borrower-friendly. Not only are they more affordable, but they also have less stringent requirements than other traditional credit products. It’s particularly beneficial for those with low or no credit score. Above all, they approve applications and disburse funds almost instantly. 

Unfortunately, many personal loans are considered “high-risk loans” since they’re unsecured, which means no collateral is needed. To protect against that, lenders charge high interest rates and, sometimes, substantial fees. The good news is that there are ways to reduce these charges and save more. Check them out here: 

Opt For Personal Loans With Low to No Origination Fees 

It’s common for lenders to charge origination fees. These are initial payments lenders charge to process a new loan application. The cost can vary from lender to lender, but it usually ranges from 0% to 10% of the money loaned. 

Most borrowers thought the bigger the loan amount, the bigger the origination fee. Hence, they often take out smaller loans to avoid paying more. However, this isn’t always the case. Sometimes, processing a $50,000 loan requires the same work as a $500,000 loan. In such cases, the origination fee can still be high even if the loan amount is small. 

Fortunately, many personal loan lenders don’t charge these upfront fees. Most of these loans are offered to borrowers with good to excellent credit scores, so they typically have lower interest rates. 

For those with low to no credit scores, many online loans also don’t have origination fees. Instead of credit reports, they assess borrowers’ income, bill payments, and even social media data to check one’s creditworthiness and reduce credit risk. 

Note that paying origination fees also has benefits. Depending on a borrower’s situation, it could lead to less strict credit score requirements, longer repayment terms, lower interest rates, faster approval, and customizable loans. 

With these perks, borrowers are already on the hook for the loan’s interest and principal if they take out a personal loan with origination fees. To save more, contact instant personal loans to lower the additional fees. Ask the lender, customers who take out the same loan, or a financial advisor for this.

Pay Extra

Making extra payments helps pay off a personal loan balance faster. This shaves a few months off your repayment period and lowers your interest charges, reducing the overall costs of a personal loan. 

However, before making early payments, ensure your personal loan doesn’t have prepayment penalties. As mentioned, paying off your loan in advance saves you on interest, but it also deprives the lender of your interest payments. Lenders then charge prepayment penalties to still make money out of the loan. 

The prepayment penalty varies from lender to lender. It can be a percentage of your remaining balance or the amount the lender loses in interest should you pay off the personal loan early. To learn more, always read the fine print of your loan. 

Pay on Time

Similar to prepayment penalties, late fees for personal loans can be costly. It typically ranges between $25 and $50 (or even higher). While many lenders have grace periods, allow promissory notes, and even waive first late payments, it’s better not to pay late since it can hurt not only your relationship with your lender but also your credit history and credit score. 

To avoid late fees, consider setting automatic payments. Many lenders even offer lower interest rates for borrowers who sign up for autopay. If this is impossible, especially for those with unstable income, set up calendar reminders. If your due date is at an inconvenient time, request a change in your payment date. 

Pay With Savings

When the interest rate of personal loans is higher than what borrowers earn on funds they slot away, it’s often recommended that they repay the debt with savings. However, this is only advised when borrowers have enough nest eggs squirreled away. 

Note that experts recommend securing three to six month’s worth of expenses in a rainy-day fund in case of emergencies, such as hospitalization or job loss. This emergency fund should be used solely for emergencies, not to pay off debt. 

Use 0% APR Intro Credit Cards

An alternative option is to consider a credit card balance transfer. Look for credit cards with low or 0% introductory interest rates on balance transfers. Once you find one, move your personal loan debt to it and take advantage of its promotional period. 

For example, let’s say you have an outstanding balance of $5,000 at a 20% annual percentage rate (APR). It will cost you around $1,000 per year in interest. If you move this balance to a new card with a 0% intro APR period for a year, then you can pay it off at no interest for a year. 

Overall, credit card balance transfers will help you reduce interest rates and give you enough time to pay your personal loan without paying large amounts of interest. However, be sure to pay down debt before the card’s interest-free period ends. Otherwise, high interest rates will kick in, and you’ll be back in the debt loop. 

Final Thoughts

Do your due diligence to become financially literate. People with debt who lack debt management skills are often likelier to be in a debt spiral. If you are unsure of what to learn or where to start, always seek professional help.