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How to Pay the Least Amount of Interest on Loans

While they do serve a very real and important function today, loans can ultimately become financial burdens, if not properly managed. From car payments to mortgages and credit cards as well as every loan in-between, the reality of credit is that it must be carefully managed and thought-through, to assure financial sustainability.

Many individuals find themselves frustrated with the interest on a loan that they’ve received. Even if this was a responsibly received loan, the amount that creditors charge as payment, based upon the total loan amount—the interest—is most always desired to be lower. Even relatively small loans will do well to have their interest rate (and interest payment) reduced, for both the long and short-term finances of the credit holder.

But how does one go about paying a smaller amount of interest on a loan(s)? Let’s take a look!

Pay More than the Minimum Payment

Paying more than the minimum payment on a loan is a great way to reduce its interest.

As one pays the minimum payment on a loan—especially those of larger amounts—the interest rate associated with this loan will become larger and more costly (in dollars), even if the actual interest percentage is lower (which isn’t always the case). For example, paying 10% interest on a loan currently sitting at $800 would result in $80 in interest, per accruing period. A $10,000 loan—even at just 8% interest—will accrue $800 of interest per billing period!

Accordingly, if one were to make the minimum payment on these (and most other) loans, he or she probably wouldn’t be paying into the principal—the core balance of the loan—but rather the accruing interest, mainly. Moreover, paying additionally into the principal balance of a loan will allow for a smaller amount of interest to be charged—and a quicker payment process, as well as less money spent overall.

Transfer the Loan to a No-Interest Credit Card

Not recommendable (as the potential for additional interest is great, should one fail to pay the debt off in a reasonable amount of time), transferring the balance of a loan to a no-interest credit card is an effective way to lower the amount of interest on the debt. These types of interest plans are offered as introductory rates on certain credit cards; these same cards will often feature a transfer fee for housing debts of a large sum, which will need to be considered before making the decision.

In addition to these potential dilemmas, one may be required to find a cosigner on the loan, if his or her own credit or income is deemed to be “untrustworthy” by creditors. While this cosigner wouldn’t need to do very much other than sign a paper (provided the individual who owns the debt does his or her part in responsibly paying the loan down), there is a bit of inconvenience and risk associated with the position for them as well.

Even with all of this considered, as was stated, transferring a loan to a no-interest credit card (through an introductory period of what is normally a year; interest will be charged at one point), is an ultra-effective way to pay directly into its principle balance.

Through maneuvers like these—especially frequent payments of amounts that are higher than the minimum required payment, one will be enjoying a loan-payment free life in no time at all.

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