Category: Loan Advice

Loan Advice

Can Anyone Pay a Loan off early?

We often hear about people paying off their loans early or are advised that it could be a good thing to do. However, you may wonder whether this is something that anyone can do and whether you might be able to do it or not.

Some loans are far easier to pay back than others. For example if you have an overdraft or a credit card then you will be able to make repayments whenever you like for any amount of money. However, many loans have regular repayments and so you may think that you have to pay those and have no choice but to wait until the term of the loan is up before it is paid off. However, this is not always the case.

It is worth investigating to see whether you can pay your loan back early. Many loans will have this facility although there may be fees for doing so. They will often have an ‘early redemption fee’ and the amount that this is can vary greatly. It can be anything from a small administration charge or a month’s interest to a huge amount of money. It is therefore worth finding out and calculating whether it is worth doing. The way to calculate this is to work out how much you would pay if you continued as you are. So add up the interest payments as well as any fees or charges that you pay with it. Then calculate how much you would pay in total, in fees if you paid it back early. You will then be able to see whether you will save any money if you do pay it back early and how much you will save.

Of course, it is all very well calculating if it is worth paying a loan back early, but you will need the funds to be able to do this. You will need to be able to manage financially after you have paid extra money back on the loan. You may decide to pay a bot extra each month so that you can reduce the term of the loan or you may prefer to pay it back in a lump sum. Either way, you will need to find the money to be able to do this. If you have some savings, this could be a really good use for them because you will save more money in the long run, by not paying the interest on the loan, compared with what interest you will get on the savings. This will depend on the rates of the savings and loan interest but it is very likely that the loan interest will be higher than what you are getting on the savings. It is worth comparing them to see. If you do not have savings, then you will need to find a way to free up money in other ways.

You may be able to reduce your spending to free up money. Perhaps you will be able to switch suppliers, providers or retailers so that you buy the same things but at a cheaper price. This way you will not feel that you are making a significant change to your lifestyle; but you will be saving money. You may also want to consider buying less items. Many of us spend money of things which are not necessary and you may find that you will be able to cut back on some of these. It could be difficult but if you make sure that you keep your goal in mind and imagine how good it will feel to be free of the debt, this should help. You will have more money available once the debt is paid off as you will not be making repayments and so you can delay your spending until then. You could even consider trying to earn more money to pay it off even more quickly. Perhaps you could work more hours, ask for a pay rise or try to get a better paid job. You could do some freelance work, start a business, sell things or try monetising your hobbies so that you can earn more money and use it all to pay back the loan as quickly as possible.

Loan Advice

Should you Borrow Money to pay for your Hobby?

There are lots of ways of borrowing these days and it can be easy for many people to get a loan. This means that whether it is a mortgage, personal loan, overdraft or credit card, many people can get hold of money if they need. Although this can be very useful, there are circumstances when we tend to borrow money when it may not be necessary. It is wise to think hard about all types of borrowing to make sure that this is not happening.

Some people will borrow money for their hobby, for example. This could be considered to be unwise and it is worth thinking through the consequences before you do borrow money. Often we have quite inexpensive hobbies such as art and crafts, cooking and baking or reading and watching television. However, some hobbies can be really expensive such as foreign travel, collecting cars or buying fine art. Even a hobby that could seem to be affordable, could become really expensive if you buy a lot of things for it.

Borrowing money for luxuries like this is often seen as a bad thing. This is because when you borrow money you have to pay for the privilege. How much you pay will depend on who you borrow it from, what type of borrowing it is, how much you borrow and how long for. However, it is certain that you will end up paying more for the item, than if you paid with money that you already had. This means that you could end up paying more for the item than you would have paid for it, had that been the price when you bought it. If you pay on a credit card, there is no deadline for when you have to pay back everything that you owe, just a minimum repayment amount that you have to make. This means that you could end up accumulating interest on the borrowing for a really long time and it could be extremely expensive. It is not always easy to keep track of how much interest you have paid, so the reality of how much it cost you is often lost.

With all borrowing it is sensible to think hard before you go ahead. Calculate how much extra it will cost you and look at how much the repayments will be. Consider whether you will be able to afford those repayments or not and if you can, think about whether you will still struggle or if it will be easy to manage them. Imagine what might happen if your bills suddenly increase or your income decreases and how you will manage to pay all of your bills including these repayments. When you have calculated how much the item will cost in total, including the cost of the loan you can then decide whether you really think it is worth it. It may be better to wait and save up for the item, use money from a savings account or to not have it at all. It is up to you to decide whether you think that it will be worth it or not. It is always good to consider whether you might find being in debt stressful. Hobbies are supposed to be relaxing and fun, but if as a result of them, you feel stressed and worried, then maybe it is worth not paying out the money. A lot of satisfaction can come from being free of debt and form saving up to pay for things and so it is worth thinking about that as well.

So it is not easy to say whether borrowing money for a hobby is right or wrong. However, it is important to be aware of the consequences before you borrow money. Think both about how good it will be to have the money and pay for your hobby, but also about how it will feel to be in debt, how much dearer the things will be and how you will manage the repayments. Also consider what might happen if you are short of money and cannot manage the repayments. This could happen if your income decreases or stops for some reason or your spending increases, due to higher bills or needing certain new items.