Nearly 43 million Americans have personal loan debt in 2020, with an average balance of $ 16,458, according to an Experian credit bureau report. Without a clear strategy for repaying this debt, many consumers will be forced to pay thousands of interest while they repay their loans.
But the good news for personal loan borrowers is that it may be possible to pay off your debt faster and save money over the life of your loan. There are a few strategies to achieve this, such as those outlined below:
- Refinance a loan with a lower interest rate
- Work on improving your credit score
- See if you qualify for an APR rebate
- Put the cash flow on the balance
Read on to learn more about savings on a personal loan in the analysis below. If you choose to refinance your personal loan, you can compare interest rates on Credible without affecting your credit score.
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1. Refinance a loan with a lower interest rate
Whether you’ve just taken out a personal loan or looking for a new loan with a lower interest rate, it’s worth shopping around.
Personal loan rates vary widely – Credible partners offer rates between 2.49% and 35.99% APR. The rate you receive is based on a number of factors including your credit score as well as the amount and term of the loan.
If you already have personal loan debt, you may be eligible for a lower rate than what you are currently paying. See how the monthly payment and total interest could change for a borrower with a 3-year $ 15,000 personal loan if they got a new rate:
- 12% APR: Monthly payment of $ 498, $ 2,936 total interest
- 10% APR: Monthly payment of $ 484, $ 2,424 total interest
- 8% APR: Monthly payment of $ 470, $ 1,922 in total interest
Check your loan agreement to find your current rate and visit Credible to compare personal loan interest rates from several lenders for free in just 2 minutes. Once you have a good idea of your estimated interest rate, use a personal loan repayment calculator to figure out your savings and see if taking out a new personal loan to pay off your current debt is worth it.
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2. Work on improving your credit score
Since personal loans are unsecured and do not require collateral, banks and lenders rely on your credit history to determine your likelihood of repaying the loan, as well as the interest rates you are offered. So even though you may get a slightly lower interest rate just by shopping, improving your credit score and then reapplying for the lowest possible rate will save you even more money in the long run.
Before shopping for a new personal loan, try to achieve a good or better credit score, defined by the FICO scoring model as a score of 670 or higher. But the best personal loan interest rates are reserved for borrowers with an outstanding credit score of 800 or higher.
You can get your credit score and credit monitoring services for free on Credible.
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3. See if you qualify for an APR discount
Some personal lenders offer a discount if you allow direct debits from your bank account.
If you haven’t set up a direct debit yet, contact your personal lender to see if you’re eligible for a discount.
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4. Put the cash receipts in the balance
Cash earnings, like a tax refund or a stimulus check, can be used to help you pay off your personal loan balance faster and save you money on interest in the long run. Just be sure to read your loan terms before doing so, as some personal lenders charge a prepayment penalty if the loan is prepaid.
However, prepayment penalties are not very common, and many lenders offer no-charge personal loans. You can visit Credible to compare personal loans, some of which do not charge a fee like a prepayment penalty.
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