Unfortunately, it is quite easy to take on expensive loans. Sometimes it can be a little difficult to see exactly what the costs are as this is not something that the lenders want to market especially much as there are negative figures for them. For example, when you buy a TV on installment, the risk is that the total cost will be much higher when interest rates are high. Interest rates on private loans can vary very considerably from the very cheapest ones, which can be close to 4% to the expensive ones that easily roll over 30%.
The difference in the cost between an expensive and cheap loan
You can compare a private loan of USD 100,000 with an interest rate of 5 or 20%. The loan with a 5% interest rate will cost USD 5,000 in interest expense throughout the year. The corresponding figure for the more expensive loan is USD 20,000. This difference of USD 15,000 corresponds to as much as USD 1,250 each month. Then we also do not count on the most expensive private loans here as they can be even higher in interest rates.
In the beginning, we have concentrated here on private loans and that they can be expensive. But there are other loans such as micro loans that can also be expensive to pay on. From the beginning, when these loans appeared, it was always the question of one month’s maturity, which did not make them particularly interesting to resolve early. Now, however, they often have a maturity that is longer than 30 days which is what makes them interesting from this perspective.
What you can say is that if you have a loan with an interest rate of over 10% or something, it is usually always a good idea to settle it early if this opportunity exists. The great advantage of this type of loan is that it is always possible to pay back on them extra without any additional costs. One thing to remember is that there are also no rules that say that you have to pay off the entire loan immediately, but you can pay back some extra if you wish.
A common way to redeem a loan is to take out a mortgage loan. This is suitable if you have a good financial situation so that a lender agrees to lend you money plus you have a large expensive loan or several less expensive loans.
Most often it is the case that the interest rate on private loans goes down if it is the question of a larger loan. Why a mortgage loan is usually suitable if there are several expensive smaller loans which in total will be a high cost. Collecting smaller loans into a large one is something that all lenders dealing with private loans are really offering. They will also usually help settle the loans to be repaid.
How to settle a loan yourself
The answer to this question is largely that you do not do it yourself. The first thing to do is to contact your lender and ask them how to resolve the loan. Sometimes this information can be printed on their website but if not, contact them. They then tell where the money should be deposited and how this should be done.