Most of us have to take out a big loan at least once in our lives, for example when it’s time to buy an apartment. If it is not a home, it could be a loan of up to $ 50,000 without collateral, for example for a major renovation.
Comparing a loan between different loan offers can save you a long penny, but few stop to think that even making small changes to the loan repayment schedule can save you money. Comparing loans is easy and quick, and you should not forget about it or planning a payment schedule when you are going to apply for a loan. By taking both steps, costs and interest rates are more likely to remain under control, even in the case of a large loan.
Of course, the rule of thumb for repaying a loan is that the faster the loan is repaid, the shorter the loan amount will be, and the lower the total cost of the loan will be. Particularly with a large loan, you should be careful, the unnecessary expenses can be substantial.
Tips for faster repayment of your big loan
If you want to pay off your loan at a faster rate, many financial experts recommend that you make loan repayments every two weeks, rather than once a month, as is customary. In Finland, banks may not offer the possibility to repay the loan every two weeks, but the customer may make additional repayments at any time if he wishes. However, it is worth noting that extra repayments may be charged during a fixed interest period.
The idea of a bi-weekly repayment is that one of the repayments is the same as if the loan were to be repaid once a month. One of the repayments is then as large as you can afford to pay off the loan at that time.
A bi-weekly loan repayment is particularly appropriate if you have regular income and are paid every two weeks, or if your spouses have different pay days.
When making extra repayments, it is a good idea to check the terms of your loan whether the excess repayment is on the main loan or on the next installment of the loan. An additional repayment of the principal decreases the principal loan and shortens the loan term. The down payment on the next monthly installment, on the other hand, does not affect the loan period, but means the prepaid monthly installment or part thereof.
Apply for a loan wisely, and don’t forget the importance of comparing loans for the total cost of a loan, as the difference between the most expensive and the cheapest loan can easily be up to thousands of euros. Therefore, it is highly recommended that you take advantage of the benchmarking site when you want to get a loan with no interest or expense. The cost of consumer loans and other unsecured loans can be easily compared in our loan comparison;
Snowflakes and budgeting
If possible, it is a good idea to channel the excess income into the loan repayment, with the aim of paying off the loan as quickly as possible. For example, tax refunds and any work-related bonuses should be directed to paying off the loan.
In addition to the obvious extra income, such as tax refunds and bonuses, there are surprisingly many ways to save on everyday expenses. For example, the so-called snowflake effect is a useful loan repayment strategy that helps you find extra funds to repay your loan.
In addition to the snowflake effect, budgeting and tracking your own expenses are key to guaranteeing the most efficient loan repayment. If you have never kept a record of your own expenses, you may end up spending huge amounts on seemingly harmless things. You can start tracking your budget, for example, with different mobile apps or Excel.
How Much Does an Accelerated Loan Save?
We calculated the difference between the total cost of the loan for the mortgage and the consumer loan when the loan is paid off in 25 or 50 percent monthly installments, as defined in the original payment plan.
Long-term mortgages are entering the Finnish market.
Recently there has been talk in the media of long-term mortgages of 25-45 years entering the Finnish loan market. Over decades of loan periods, the total cost of a home loan will rise quite high compared to more reasonable loan periods, but nonetheless, long loan periods have attracted some interest among consumers. Of course, as a bait for long loan periods, there is an increase in the monthly amount available, while the monthly repayment amount remains quite moderate.
However, there are risks associated with a long loan period. Long loan periods threaten to increase indebtedness and are expensive for customers. In practice, only a bank benefits from a long loan period when the customer pays interest to the bank for decades. So, long loan periods are rarely a good idea in any situation, so you should try to pay off the loan as quickly as possible.