Most of us have different types of loans. There is a mortgage and a car loan, plus maybe a couple of consumer loans after the renovation and last year’s holiday trip. The loans may come from different banks or other lenders and have different terms and interest rates. If more loans are accumulated, the monthly repayment amount may become a burden on the economy and it is time to get rid of them. What is the best and most affordable way to pay off your loans?
Borrowing money is a necessity for most people at some point in their lives. You may have studied with a student loan and bought a home with a mortgage loan. A loan was also needed to purchase a car, and many other major purchases were financed with credit.
However, as the name implies, the loan is merely a loan and must therefore be repaid in accordance with the contract. Sometimes loans are accrued unnoticed or changes in income levels, for example due to unemployment or illness, make debt repayment more difficult. If you default on your loans, you may face serious problems.
If you are unable to pay your loans
Failure to make repayments on a consumer credit can result in foreclosure and defaults on credit information. A default payment label can have a variety of unpleasant consequences that you may not have thought of. Not only can it be difficult to get a new loan, a payment default can also make it difficult to get a rental home or even a telephone subscription. Non-payment of a mortgage, on the other hand, can result in the bank taking over your home and selling it as collateral for your debtors, leaving you homeless. Failure to repay a loan from a friend, on the other hand, can permanently affect your friendship or even lead to an interruption. So whatever the loan, you have to repay it.
If your loan repayments and expenses start to get stressful, it’s good to sit down and think about the situation. List all your loans, their interest rate and the monthly installment on the paper. Also check the amount of outstanding loan and the number of repayment months.
Priority of payments
Think about your income and expenses. Realistically determine for yourself what amount you can spend each month to repay your loans. Don’t make your finances too tight, but leave enough money for living and other bills, in addition to paying off your loan. Always remember the order of the expenses: housing expenses such as rent or mortgage, electricity and water charges are taken care of first, followed by other compulsory expenses such as insurance, telephone, day care fees and medicines, and then the amount of other bills and loans leaving monthly money.
Reducing the monthly repayments on your loan may also be successful with express brokerage companies, but this option can be costly overall. In the case of a quick draw, the interest rate on a loan is usually quite high, and you end up paying a much higher amount than you imagined when you took out a loan.
In addition, you will likely also have to pay the cost of changing your loan repayment plan. If the loans are consumer loans or quick liens, tightening the belt and systematic repayment of loans are usually a more sensible solution.
If you have several consumer loans and loans, you should also pay attention to the cost of the loans. Instead of paying off several loans, it is usually worth trying to consolidate the loans into one larger loan so that you pay the cost of this one loan only. If the loans are from the same lender, the combination of the loans is likely to be quite easy. If the loans are from different lenders, check out the biggest lenders in Finland and the loan offers they offer to get a bigger loan. With this bigger loan, you will then pay off the smaller loans.
In what order are the loans worth paying?
If you cannot combine loans into one loan, it is time to consider different payment strategies for repaying several loans at the same time.
Start by listing all your loans on paper. Also record the interest rate for each, the minimum monthly installment, as well as the principal outstanding and the number of installments. There are different strategies for paying off your loans that you can choose the most suitable for you.
The cheapest way is to pay off the most expensive loan first, ie the one with the highest interest rate. In this case, you will pay off all other loans at the minimum monthly repayment, and use the rest of the money you have budgeted to repay the most expensive loan. This repayment method is mathematically the cheapest for you, because the sooner you pay off your high-interest loans, the less you will be paying the full cost of interest.