Choosing Your Loan Repayment Period
One of the crucial factors to consider when getting a loan is
the length of the repayment period that you will apply for.
This will affect how much you pay each month as well as the
total amount you will pay back. As well as getting the length
of repayment period right, you need to choose the right method
of repayment so that you can afford the repayments whilst still
paying your loan back quickly. Here is some advice about
choosing the right repayment period for your loan.
Shorter period is better
Whenever you are looking to get a loan, work out what the
shortest repayment period you can afford is for the amount you
want to borrow. Although longer repayment periods will mean
that you pay less each month, you will probably pay more in
total because of the extra interest you will pay over the
longer period. Always go for the shortest period you can afford
to pay, as this will help you to pay your loan off more quickly
and also save money by paying less in interest.
Standard loan repayments
As well as working out the length of your repayment, you need
to consider the different methods of repaying your loan.
Although not all loans offer different repayment plans, it pays
to know which plan will work for you so that you can find a loan
that fits these criteria. The standard repayment method is the
most common, where you simply pay a fixed amount each month
until you have paid off the entire loan. With this type of
repayment you know that you will be paying off the loan
steadily each month, and after a certain period you will have
paid the loan off.
Graduated repayment
There are some loans on the market that offer you a graduated
repayment scheme, meaning that the loan repayments start off
small but then increase after a certain period of time. This is
good if you have taken out a loan and expect your earnings to
increase over time, and so allowing you to afford higher
repayments. This method of repayment is less common and so you
will need to shop around to find a loan like this.
Balloon payments
Some loans allow you to pay just the interest each month for a
number of years, and then pay the final balance off in one go.
This type of repayment is good if you know you will receive a
lump sum of money in a few years but need to get hold of cash
now. This type of loan means you pay little at the beginning,
but at the end pay off the final balance. However, you
generally end up paying more with this type of loan as you are
only paying interest for the first few years of the loan.
Changing the terms
Although choosing the right loan period is important, there is
always the possibility that you can change the terms if you
need to. If you find that you can afford to pay off the loan
more quickly, then try and do this, although beware of charges
for early repayment. Also, if you find yourself struggling to
pay off your loan then you should speak to your lender and try
to arrange an extension for repayment so that you can more
easily manage the payments. However, remember that the longer
you take to pay off the loan, the more you are paying overall.
About The Author: Peter Kenny is a writer for The Thrifty Scot,
please visit us at http://www.loanwize.co.uk and
http://www.thriftyscot.co.uk/Loans/
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