If you’re one of the millions of Kiwis who have taken out a personal loan, you may feel the weight of your debt. Personal loans can be a great way to finance big purchases or consolidate debt, but they can also be a burden if not managed properly.
According to stats from the Reserve Bank of New Zealand, the average personal loan is $9,000, and the average interest rate is 13.5%. That means the average person is paying $1,225 in interest every year!
However, you can follow some simple tips to ensure your loan is manageable and doesn’t become a financial burden.
- Make sure you can afford the payments
Before you take out a personal loan, make sure you can afford the monthly repayments. Then, use a personal loan calculator to see your repayments based on the loan amount, interest rate, and repayment period.
Suppose your monthly repayments are more than you can afford. In that case, you may want to consider a different loan option or extend the repayment period.
You can also explore other options, such as a line of credit, which may have a lower interest rate and flexible repayments. For example, Nectar is one of the leading online lending services for Simple & Fast Emergency Loans Online in NZ among many others. And once you find a lender you like, you can apply and get the money you need within 24 hours.
- Choose the right loan term
The loan term is the time you have to repay your loan. Personal loan terms can range from one to seven years.
When choosing a loan term, it’s important to consider what you can afford to repay each month. For example, an extensive loan term will mean lower monthly repayments, but you’ll be paying more in interest over the life of the loan. Whereas a shorter loan term will mean higher monthly repayments, you’ll pay less interest overall.
- Compare interest rates
Interest rates vary from lender to lender, so it’s important to compare personal loan interest rates before you apply for a loan. Use a personal loan calculator to see how much you could save by shopping around for a better interest rate.
In addition to interest rates, compare the fees and charges associated with different options. For example, some lenders may charge annual, late, or early repayment fees.
- Make extra repayments
Making extra repayments on your loan will help pay your debt quicker and save interest costs. Also, some lenders allow you to make redraws, which means you can take out any extra repayments you’ve made if you need them.
However, check the terms and conditions of your loan before making extra repayments, as some lenders may charge fees for redraws or early repayment.
- Avoid missed or late payments
Missing a personal loan repayment or making a late payment can damage your credit score and cost you money in fees. To avoid this, always make your personal loan repayments on time.
If you’re struggling to make a personal loan repayment, contact your lender as soon as possible. They may be able to work out a payment plan or offer other assistance.
More importantly, if you’re struggling to make ends meet, it may be time to consider debt consolidation or another debt relief option.
- Review your loan regularly
Once you’ve taken out a personal loan, it’s important to review your loan regularly. It will help ensure you’re on track to repay your debt and avoid potential financial problems.
You can also use this time to shop around for a better interest rate. If you find a better deal, you can refinance your loan and save on interest costs.
However, be sure to compare the charges associated with refinancing before you make a decision.
- Personal loan repayment holidays
Some lenders offer repayment holidays if you’re struggling to make a personal loan repayment. It means you can take a break from making repayments for a set period.
However, interest will continue to accrue during the repayment holiday, so you’ll end up paying more interest over the life of the loan. In addition, some lenders may charge fees for taking a repayment holiday.
- Pay off your debt as soon as possible
The sooner you repay your loan, the less interest you’ll pay. So, if you can afford to, make extra repayments on your loan or pay off your debt early.
However, check the terms and conditions of your loan before making extra repayments, as some lenders may charge fees for early repayment.
- Use a personal loan calculator
A personal loan calculator can help you compare personal loan interest rates and terms from different lenders. It can also help you see how much you could save by making extra repayments or refinancing your loan.
To use a personal loan calculator, simply enter the amount you want to borrow, the loan term, and the interest rate. The calculator will show you the monthly repayments, total interest costs, and repayment amounts.
- Remember, personal loans are a big responsibility
A personal loan is a big financial responsibility. So, make sure you can afford the repayments before you take out a loan is important.
Suppose you’re struggling to make ends meet or have difficulty making your personal loan repayments. In that case, it may be time to consider debt consolidation or another debt relief option.
Most importantly, remember to review your loan regularly. It will help ensure you’re on track to repay your debt and avoid potential financial problems.
Bottom Line:
A personal loan can be a great way to consolidate debt, finance a large purchase, or cover unexpected expenses. However, it’s important to remember that a personal loan is a big financial responsibility.
So, shop for the best interest rate and terms before applying for a loan. And, once you’ve taken out a loan, be sure to review your loan regularly and make your repayments on time. For example, suppose you’re struggling to make ends meet or have difficulty making your personal loan repayments. In that case, it may be time to consider debt consolidation or another debt relief option.