5 ways to repay your personal loan faster

Here are 5 simple ways to ensure you repay your personal loan faster.

1. Get the lowest interest rate before you take out the loan.

Quite often the first and only place borrowers look for a loan is their current bank. Here’s a no-brainer – look a little further than your bank or other banks.

There are plenty of lenders out there and they range from the big 4 banks to non bank lenders. If you get pre approval from your lender for a new car and you walk on the car lot with that in your back pocket, you can use that to bargain down the on site lender. Ask for a lower rate or to waive application fees.

2. Make more frequent payments.

If the interest on your loan is calculated daily on the outstanding balance then don’t wait till the repayment is due, pay it as soon as practical.

If you get paid weekly and your repayments are monthly then you may be able to make more payments.

3. If you get a bonus or have a windfall, stick it in the loan.

Do you get an annual bonus or maybe a tax refund. Pay it into the loan if you don’t need access to it before the term of the loan is up.

4. Do a personal budget

Do up a personal budget to find savings and use them to make extra payments.

5. Watch the fine print for early payout fees

The last tip is to make sure you won’t get stung if you fully repay the loan before the end of the scheduled loan term.

Read your loan documents very carefully to make sure there’s no surprises.

Why are personal loan rates so high?

I wanted to see what average personal loan interest rates had done over the last 10 years in comparison to other interest rates on loans and sources of lender funding. This is what I found after jumping on the RBA website.

interest rates over last 10 years

Interest rates over last 10 years – source RBA

The impact on home loans, 90 day bank bills (government loans) and high interest savings accounts (personal loans to the banks) during the Global Financial Crisis (GFC) was marked. Basically the bottom lines in the graph reflect that these indicators were rising sharply and then reversed rapidly down.

The rude shock is that there was little effect on personal loans and low rate credit cards. Prior to the GFC all of these indicators were basically in step with each other.

What this means is that you should look to use redraw and offset facilities before taking out more expensive short term loans. If you can.

If you can’t then compare lenders to get a better deal.