You’ll probably agree with me that there are many choices for paying back a loan.
Maybe you’ve been beating your head against the wall trying to use a loan repayment calculator. You might also wonder whether to pick a fixed or variable rate loan. It seems confusing to figure it out. Or is it?
It actually happens to be that you can very easily do it once it been broken down. There’s only a few key things you need to know.
You’ll feel confident enough to handle it after finishing this guide.
Option 1 – Fixed Rate
The average inflation is about 2-3% in any given year in the United States. This means the money you take as a loan will cost less to pay the bank back. Therefore, it’s to your advantage to try getting an interest rate near inflation. If you can lock in a loan at 4-5% that means you will not be paying the bank more than 2-3% to use their money.
As you can see in this chart, the interest rates on homes have been steadily rising. This is a good indicator for rates increasing for other loans too. Interest rates will be getting more expensive soon too. People with a steady income that isn’t likely to increase very fast should look here first. You should at least see if you can get a low fixed-rate loan first. This is the smaller gamble.
Option 2 – Varied Rate
This type of loan depends on the interest rate in the market. This is determined by the central bank known as the federal reserve. If the federal reserve increases the interest rate, then the amount you’ll have to pay back will increase. You can read this article here for more detail. This might make your payments much more expensive. Sometimes lenders only offer this to someone if their credit is not that great.
There is a possible advantage to a fixed loan in the beginning. Your initial interest rates may be lower. Lenders do this since rates are likely to rise in the next decade. The lender baits someone with low interest rates now, so they pay more later. People who expect to earn more money in the future should consider variable-rate loans if they are going to pay it off quickly.
Methods For Paying
There are three main methods of paying the institution the actual money. You can call them by phone and give them your credit card number. Many people mail a check. This gives them a record and a personal sense of how much they are spending. Now, there is a growing amount of loans you can pay online. You can simply enter your card number into their website.
Banks also allow you to directly transfer between your savings or checking account to the loan. This prevents most fees. You will also get the option to have a statement mailed back to you every month for your record keeping. It is good to keep for safe keeping since some loans are tax deductible. Be sure to meet with an accountant to find out for sure. Feel free to read this article to be prepared.
Final Thoughts On Repaying A Loan
As you’ve seen, paying a loan is pretty simple. You can pick whatever method is easiest for you. It is usually faster to write a check or pay online. You won’t have to wait for the customer service rep. There are two main options to pick from. Since there is a low-interest environment, you should try to lock in a fixed-rate loan.