How Can You Reduce Your Total Loan Cost Fast?

We have ten ways to help you answer the question: how can you reduce your total loan cost?

All the suggested ways are easy and practical and can help you reduce the loan cost significantly. You can even combine all the given options, or mix a few, so the savings you achieve would be much greater than using just one solution.

However, before we get to the ways to reduce the total loan cost, it is best to understand the parameters that are used to calculate interest and the total loan. The formula to calculate the interest on a loan includes the principal amount that is borrowed (P), the interest rate (R), and the term or time (T) that you have to pay back the debt completely. The main thing to understand is that any changes in one of these components can help you alter your total cost of a loan.

So, if you can decrease the principal amount, reduce the total time, or get discounted interest rates, the total interest would decrease leading to a cheaper loan in the long term. There are many ways to help decrease these values and reduce the overall debt burden.

The following are the 10 best ways to reduce your total loan cost.

If you are trying to reduce your total loan cost, then it is best to start early. Many lenders offer rates slightly different than one another. A lot of them allow you to check the rates by filling out quick online forms. Checking the rates this way won’t affect your credit score either.

Therefore, it is best to compare offers and do research before you accept any loan. If you just go with the first one that you qualify for without looking around, you might end up with the more expensive option.

You can even prioritize federal loans if you qualify for one. Federal loans offered to students usually have lower interest rates compared to private ones. Moreover, if you end up working in the public sector after graduation, you may even have the option of having your loan forgiven or getting more leverage.

Some lenders provide options in terms of the repayment term. The repayment term refers to the number of years within which you have to repay the debt fully. To reduce the overall cost, it is best to go for the shortest term available as an option. This may mean paying a greater amount of monthly payments; however, in the long term, it reduces the overall cost of the loan. So, the quicker you pay off your debt, the lower the interest will be overall.

This overall reduction happens because the ‘T’ in the interest calculating formula is reduced which decreases the calculated interest. For example, if you take a loan of $12,000 at a 5% interest rate and instead of paying it over 10 years, you choose a shorter term of 8 years. By doing so, you will save an amount of $1,200 when compared to the 10 years scenario.

However, bear in mind that this method may mean higher monthly payments. Therefore, always go for a plan that you can easily afford to avoid any late payments or penalties. You could even do some side jobs to help with the loan and pay it off quicker.

Using autopay is another answer to how you can reduce your total loan cost. It is actually a very convenient way to do so.

Many lenders give the option of automatic payments where the loan providers take money directly from your bank account on a specific date every month. You can enjoy a reduction, of 0.25% typically, in the interest rate if you opt for this. This amount may seem small, but makes a noticeable difference in the long term. It won’t only reduce the rate but will take out the hustle of manually paying the monthly installment. You can be saved from late payments and penalties this way too.

This method reduces the value of ‘R’ in the formula used to calculate interest. So, if your original interest rate of 5% is reduced by 0.25%, you will lower your total loan cost and save money.

You can calculate your monthly payment using our simple-to-use calculator below.

A way to reduce your overall loan cost is by refinancing with a different lender. It involves switching the current loan to another lender offering more favorable terms. The situation can get even more favorable for you if you can develop a good credit score.

When students graduate and start working their credit score situation usually changes and improves. Once your credit scores go up, you can qualify for lower interest rates. There are quite a few ways in which you can increase your credit scores and enjoy its benefits in the face of cheaper loans. However, you might have to shift from a federal student loan and refinance it as a private student loan in order to get the benefits.

However, do keep in mind that refinancing your original loan into a private student loan may result in losing some options and benefits that you can get only through federal loans.  Moreover, refinancing has many variables and not all may apply to everyone. So, the final result in terms of saving may differ in every situation.

If you have been a previous customer of your current lender, you could be eligible for a loyalty discount. Some lenders offer this to keep their customers. Moreover, being a previous customer who has successfully paid their debt in a timely manner gives lenders more confidence and they can offer lower interest rates.

There is also a certain group of customers with specific criteria that are offered more discounts. You can contact your lender to check with them if you are meeting any such criteria.

If you defer your interest payments or do not pay them on time, the amount accumulates. The missed payments are added to your loan’s principal amount which will increase your overall loan balance and you will end up paying interest on that higher loan amount. Therefore, always pay up on time or before time so that the interest does not capitalize on your loan.