Home Business Insights & Advice Ways to save money when borrowing

Ways to save money when borrowing

by John Saunders
24th Aug 21 9:49 am

Whilst borrowing money from a lender will usually end up costing money (e.g., in interest repayments), there are ways in which you can help lower the cost of your borrowing.

People need to borrow money for all sorts of reasons whether it is paying household bills or another important emergency expense, however, there are ways to borrow in the most cost-effective way possible.

Today we take a look at some top ways to help you save money when borrowing.

Tip 1: Only borrow what you need 

While you may be eligible to borrow more than what you need, it’s important not to get tempted by this. When borrowing a personal loan or similar, you’ll most likely have to pay a percentage of the amount borrowed as the interest.

Therefore, you can help to reduce the cost of borrowing by lowering the loan amount, only borrowing what you really need, keeping within your budget. This could help you to save money when borrowing, lowering the interest on your loan by lowering the total amount borrowed.

Tip 2: Look out for early repayment charges 

After you’ve borrowed the money, and now have enough to pay the loan back, you may want to do this earlier than initially agreed by you and the lender. However, it’s important to look out for any early repayment charges that are included as part of your loan agreement, as these can make the loan more expensive.

The early repayment charge for a loan is often equivalent to 1-2 months’ interest. However, the charge can vary depending on the loan.

Before paying off your loan early, you’ll want to figure out whether this will end up costing you more or less than waiting out the full repayment period initially agreed. If it makes more sense to following this initial repayment period, you may want to save the money you have to pay off the loan in a high-interest savings account.

Tip 3: Consider a 0%-purchase credit card

Another great way to save money when borrowing you may want to consider is using a 0%-purchase credit card.

If you take out this type of credit card, and use it for all your normal, everyday shopping, while taking your own cash and putting it into a high-interest savings account, you could actually make a profit.

This tactic is called ‘stoozing’ and will only work if you make sure you have enough to manage the repayment on the credit card, keep up with these repayments, and ensure the balance is cleared before this 0% deal ends.

Tip 4: Keep your end of the bargain 

An essential tactic for borrowing money is keeping your end of the bargain, making sure you keep up with the monthly repayments on the loan, paying these off when required and in full.

While seemingly simple, by following the rules you’ll help yourself avoid additional charges and fees that can accrue when not repaying when agreed. If you cannot repay your loan, you could find yourself owning even more in interest and late charges and it can have a negative impact on your credit rating.

In addition to this, keeping up your end of the bargain can also help to improve your credit score, which can open you up to more borrowing options in the future, whereas missing repayments can actually worsen this score.

 

The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.

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