Americans are accumulating more and more debt across the board. Student loan debt, which surpassed $1.5 trillion in 2018, receives most of the attention. But the rise in debt also includes personal loans. The number of customers acquiring personal loans increased 7.5% from 2016 to 2017, according to TransUnion. If you’ve recently gotten a personal loan, you’ve now joined that group.
In many ways, getting a personal loan is the easiest part. Now that you have one though, you’ve made it to the hard part – managing the loan. Everyone wants to manage their personal loan responsibly, but not all consumers are aware of how to do so. The strategies below will help guide you through managing your loan in the best way possible.
Always Make Your Payment
In the world of credit cards and loans, everything revolves around minimum payments and due dates. If you miss your due date, you are putting your account in late payment status. Late payments can negatively affect your credit score and are therefore something you want to avoid. That applies to completely missing a payment, as well. One way to prevent late or missed payments is to put your loan payments on auto-pay. Doing so effectively eliminates this potential problem. If your lender does not provide auto-pay, add the payment date to your calendar or schedule with advanced notice so that you do not forget to make the payment. Additionally, taking advantage of your lender’s option to pay online can help. The easier it is for you to make your payment, the less likely it is that you’ll make a mistake that can negatively affect your credit.
Be Aware of Your Interest Rate
Your personal loan is attached to an interest rate that represents the cost you are paying the lender for borrowing the money. When consumers apply for a loan, they are provided with that rate by the lender. There are two types of interest rates – fixed and variable. Fixed interest rates remain the same throughout the life of the loan. Variable interest rates, on the other hand, are subject to change. As the federal reserve increases or decreases interest rates, the rate for your loan may adjust as well. If your loan has a variable interest rate and it increases, your monthly payments will increase in response. It is important to know which type of interest rate you have and plan your repayments accordingly.
Consider Early Payoff
Paying off a personal loan comes with several benefits. You will have less debt and pay less over the life of the loan, thereby saving money. Allocating additional funds to your monthly payment or moving to a bi-weekly payment schedule can shorten your payment time and make the loan more affordable in the long run. Online payoff calculators can provide tools to assist you in determining if paying off your loan is possible and what it would take to do so. However, some lenders impose a penalty for loans paid off before the original date. Check your loan origination documents to determine if this penalty applies to you before making changes to your payment plan.
Personal loans can be used to consolidate or refinance debt. They can also serve as a temporary method for reaching a goal. Because the interest rates are generally lower than credit cards, they are a popular choice for financing. Successfully managing and paying off a personal loan can help borrowers move closer to their goals and improve their finances.