In 2018, 34% of U.S. citizens had taken out a personal loan, most of which were installment loans. An installment loan is where you borrow a lump sum of money and repay it through a series of predetermined payments over a specified period of time.
The repayment period can be a couple of months or a few years. The installments are usually monthly.
However, many people struggle to pay back an installment loan on time. Failure to keep up with the installments results in extra fees, and sometimes negatively impacts the borrower’s credit score. To avoid that, here are five tips to help you with paying back an installment loan.
1. Prioritize Paying Back an Installment Loan
In every financial decision throughout the repayment period, the loan should always come first. Many borrowers make the mistake of prioritizing other needs, only to end up with no cash to clear the loan.
With every paycheck, make a point of setting aside a small percentage to cover the installments. Making a monthly budget is a sure way of keeping up with payments.
2. Round Up Your Payments
Usually, when an installment loan is broken down into small payments, the resulting installments are often odd value like $256.78.
Such a case is an opportunity to clear the loan quickly by rounding up the values in your payments. For instance, instead of paying $256.78, make a $300 payment every month. You barely feel a pinch in paying the extra $43.22, but at the end of the year, it amounts to $518.64.
3. Increase the Payment Frequency
Instead of waiting till the end of the month to make payments, why not pay them bi-weekly? Doubling your payment frequency halves the payment period, and gives you a favorable credit score.
Before changing the payment routine, first, consult your lender to see if it’s okay.
4. Make Some Extra Payments
Even if you are not prepared to double your payments, you should still consider making a few extra payments when you run into some extra cash. It might be the occasional tax refund or cash rewards such as bonuses at work.
Again, you need to first check with the lender to find out if this is acceptable, though in most cases extra payments are welcomed and encouraged. They help you pay off the loan quicker.
5. Try Auto Payments
If you are in the habit of forgetting to pay your installments on time, then it a good idea to try auto-pay services. These are services offered by banks and other financial institutions to automatically pay loan installments from your credit account whenever they are due.
There may be a small charge, but at least you won’t have to worry about late payments again.
The important thing is to make sure that you are prepared in paying back an installment loan before borrowing. If you are late for a payment, inform your lender early and work out a solution.
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