Do you take out a cash loan and want its costs to be as low as possible? You will certainly be pleased to hear that there are proven ways to reduce your borrowing costs. How?
The ranking of cash loans will help you in choosing the most attractive, the cheapest offer. What should you pay the most attention to in his case? What other ways can you resort to making your loan as cheap as possible?
What does the cost of a cash loan consist of?
The cost of a cash loan is not only interest accrued on the principal amount at the agreed interest rate, but also a number of other fees paid by the borrower. This cost includes:
- interest – their amount depends on the cash loan interest rate,
- bank commission – calculated for the granting of a loan or accession to a loan,
- insurance – insurance premiums, although it is usually optional for the borrower.
The most important cost element associated with bank lending is the interest rate on cash loans. It is limited by law and may not exceed twice the statutory interest, which currently amounts to 5 percent. per year and are the sum of the reference rate of the Good Finance and 3.5 percentage points.
How to reduce the cost of a cash loan?
The cost of cash loans can be reduced relatively easily. It is worth knowing at least a few methods that will make your credit cheaper – we present 6 proven tricks.
Negotiations with the bank
The first step that should be taken by any borrower who wants to reduce the cost of cash loans should be to talk to the bank. The only question is how to negotiate with the bank? It’s worth just contacting your bank’s credit advisor and trying to get better terms.
Customers who have a good credit history at the Credit Information Bureau or collateral in the form of their own contribution have a chance of negotiating success.
If the customer has a good history of cooperation with the bank and high credit standing, then the lender will be willing to take into account his reliability and grant him a cash loan on preferential terms.
Using your bank’s credit offer
Banks often offer credit promotions to regular customers in thanks for their loyalty. For the bank, this situation is optimal because it grants cash credit to a client whom he knows and whose financial flows on his account can be traced.
The credit risk borne by the lender with such offers is minimal, therefore the loan offer can be very attractive.
Comparing loan offers
On the credit market, most banks and cooperative savings and credit unions have in their offer cash loans for individuals and entrepreneurs.
Everyone can offer something different, and a comparison of individual offers of obligations in the desired amount and for a set period will help to choose the most attractive offer at a given time.
Choosing the right repayment option
A very important issue when calculating the cost of a cash loan is how it will be repaid. The borrower can reduce the total cost of lending if he pays attention to the number of installments and how their repayment has been spread over time.
It is assumed that the longer the loan repayment time, the lower the monthly installment will be, but at the same time, the total amount of interest will be higher than for cash loans with shorter repayment terms. The faster we repay the liability, the faster the bank will accrue interest on borrowed capital.
Use of additional products
The cross-selling mechanism, i.e. the strategy of offering additional banking products when granting loans, is most often used for mortgage loans. However, it can also be used with a cash loan to lower the loan margin and reduce the cost of additional loans.
If the bank allows changing the terms of the loan to a more favorable one only if you set up a free personal account, the borrower has nothing to think about – he can only open an account. Sometimes it is also required to transfer a monthly withdrawal to it.
However, if cross-selling includes the use of a credit card or other payable banking products, it is worth calculating whether changing the bank’s margin is worth paying for an additional, often unnecessary, banking product.
Repay loan ahead of schedule
The Consumer Credit Act and the group of such loans include cash loans taken out in Polish banks and credit unions for an amount not exceeding USD 255 550, allowing borrowers to repay the loan early. The bank may not prohibit this customer, and must also pay previously collected commissions and other fees in a proportional amount.
So if your household budget has a financial surplus, go ahead to partially or fully repay your cash loan, which will allow you to reduce the amount of principal and interest installments or shorten the repayment period, which will reduce your borrowing costs.
Bank loan refinancing
If your cash loan is expensive, consider refinancing it. What is loan refinancing? This involves converting a more expensive loan to a cheaper one in another bank. However, before you transfer your existing loan to another credit institution, review the terms of the contract.
It may turn out that refinancing will be a way to carry out the operation, but if you can reduce the overall cost of cash loans this way, you may want to pay the fees associated with ending your loan agreement ahead of time.