Deciding to take on extra debt is a big decision in itself. However, apart from the the decision to borrow, there are other considerations that are important when deciding your best options. One of those is how long you wish to have the debt outstanding. We look at the process of deciding a loan repayment period.
Many Struggle With Long Repayment Periods
Deciding how long you wish to make repayments on a loan extends beyond how it fits into a budget. Some struggle to have debt hanging over them for a long period of time. This is true even if the monthly repayments are manageable for them. This is dangerous, as they may take on too much as result, making repayments that cause them to struggle with life’s essentials. Doing so because they insist on a shorter repayment period. Borrowers have to balance what they can afford, and their ability to deal with debt.
What affects your borrowing costs
Naturally, the amount paid in interest to borrow funds depends on how much you require the cash and the speed at which you intend to repay it. Naturally, borrowing a small amount with a competitive interest rate means that your repayments are easier to handle. What’s more, the total interest you pay no top of the principal amount will not be significant. This makes the process less of a burden on the borrower. But not all loans will be like this of course. The more you borrow, the more interest you will pay. And it is likely that the less healthy your credit report, the higher the rates lenders offer you will be. APR is used as a guide to what a loan will cost, but also ensure all costs are taken into account before proceeding. It is possible there are other fees on top.
Deciding A Loan Repayment Period – Options For Borrowers
If you wish to borrow, a loan is of course an obvious choice. But it is not the only choice. Some may use family and friend contacts to acquire funds. This has the advantage of avoiding interest charges and credit checks. It does however put pressure on personal relationships. It pressures those you borrow off, and adds pressure for repayments to be made on time and in full. Approach with caution.
Alternatively, a credit card may be an option. This can work in two ways. Take out a credit card which offers 0% interest on purchases for a certain period. Or transfer existing debt onto a card to free a card for use at better rates than a loan. The latter option is unlikely to work. The first can, but always ensure the balance is paid off before the introductory offer expires. Failure to do so will see borrowers hit with sky-high interest rates on the remaining balance.
Further Advice
Always spend some time shopping around for credit. Use comparison websites to look at different deals. Ensure you are aware of any extra charges or fees. All loans should inform you clearly how much you’ll pay back overall, including total interest charges.
Deciding A Loan Repayment Period -Payments
A loan agreement will have an amount you have to pay back every month. You need to fit this into your budget so that taking out a loan does not result in problems. you do not want to involve yourself in a constant struggle to survive. Nor do you want to miss out on essentials in order to meat repayment requirements. Should your financial situation improve during the repayment period, there may be an opportunity to pay off the balance early. But do not assume that this will save you money. Check your terms and conditions fully before proceeding. Some lenders actually penalise borrowers for paying up loans in advance. You need to be clear of the repercussions if considering such an action. However, this tends to be for very old loans only, and law changes mean you should be fine on this front.
Advantages of regular repayments
Regular repayments allow borrowers to organise their finances a lot easier.
When they know what is coming out of an account, then you can allocate your income and work out how to accommodate the new costs. It also allows you to calculate clearly when you completely clear the debt. It makes budgeting simpler.
Deciding A Loan Repayment Period – Disadvantages of regular payments
For some, regular repayments may not be the advantage it is for others. This is because for many in the current climate and the way zero hour contracts work, many have irregular income. They do not know month by month how much they earn, so may prefer to make repayments that reflect what comes in. This cannot be done if regular payments are set up.
The Costs Of Borrowing
When you take out credit, be it borrowing via a loan or a credit card, the costs should be laid out clearly in front of you by the lender. The borrower must know what they are borrowing, the total amount to repay, and the time period for repayments. They can then calculate easily the amount of interest to pay on the credit, and decide if is a worthwhile deal for them.
Virtually all sites will include online calculators that allow you to work out the figures involved in borrowing without having to do the maths yourself.
Always keep up with repayments
If you miss any repayments you could be hit by fees and additional charges. There is almost a guarantee too that your credit rating will suffer as a consequence. do not borrow unless you have full confidence in making repayments.
