Are you being kept awake at night worrying about your bills?
Loan repayments can be crippling. Can you reduce them? Yes! Here’s some useful information about two of your most sensible options: moving your unsecured loan elsewhere and over-paying to reduce the amount you owe.
Keeping your savings versus paying off your loan
As long as the early repayment charges aren’t too high, it’s often best to pay off your loans in full if you can because you’ll spend less in the long run. Pay off the loan with the highest interest first, and work your way down.
Replacing your existing loan
It’s worth shopping around in case you can get a cheaper loan elsewhere, or one with a shorter term. There are plenty of excellent loan comparison websites online to make your life easier, and you can’t go far wrong with Martin Lewis’s moneysavingexpert site.
You can get special debt consolidation loans, where you roll all your debt into one and make one convenient monthly payment. They’re harder to find than they used to be, and they’re not for the faint hearted. You need to take a long, hard, logical look at the repayment and loan lifetime. Loans like this can cost you a lot more in the long term and if you default and it’s a secured loan, you risk losing your home. You also need to be disciplined, certain you won’t rack up even more spending and get caught in a scary spiral. If you’re about as disciplined as a jellyfish, don’t go there!
The charges? It depends when you took out your loan
If you took your unsecured loan out after 1st February 2011 and borrowed less than £8,000 you’re allowed to pay it off in full without being charged extra. You shouldn’t face any extra charges for paying off variable loans early either.
Paying extra to reduce your loan
No savings? Your lender should let you make extra payments to get rid of it sooner and reduce the overall cost. If you took out an unsecured loan after 1st February 2011, in almost all circumstances you’ll be able to repay as much as £8,000 a year extra without any penalties. If you want to repay more than £8,000 extra in a year, your lender shouldn’t charge more than 1% of the extra amount you pay in.
Unless your contract specifically mentions it, you can’t just overpay willy nilly. You need to give your lender notice, then make your extra payment within 28 days.
If you have an unsecured loan taken out before 1 February 2011 or any other kind of loan, you aren’t usually allowed to overpay.
Grit your teeth and endure the boredom – Check the small print!
Before you do anything, check the small print. There’ll be loads of it. It’ll probably be written in dense legalese. And it will definitely be one of the most boring things you’ll ever read. But it’s essential to have a clear picture of exactly how your loan works. If you find yourself lost in space, call your lender and get them to explain everything in plain language.
Avoid expensive phone calls
Some lenders only provide premium phone numbers for inbound customer calls. Presumably they make a lot of money out of them. Luckily there are ways to avoid the expense. The same goes for freephone 0800 numbers, which can cost a fortune if you call them from your mobile. There are ways to avoid paying for 0800 mobile calls too, and I’ll cover some of them tomorrow.