Although it sounds unbelievable, it’s not impossible to avoid paying interest on your loan. Let’s take a look at how you can save on interest payment with a personal loan.
How to save on loan interest
In order to save on personal loan interest rate, you can follow these steps:
Step 1: If possible, make a lump sum payment
You can save on your loan interest by making a lump sum payment instead of making a monthly repayment. This can bring down the interest payable to a lower level. Most of the banks allow you to make a lump sum payment on your loan. The bank might charge you with a fee in such cases, but in the long term, it’s more profitable than paying a monthly repayment for years.
Step 2: Pay the loan amount using your credit card
You might have heard of taking a personal loan in order to pay off credit card debt, but the reverse is also feasible. You can use your credit card to clear your loan debt. However, it’s not a popular trend but it can prove effective if implemented wisely.
Step 3: Use balance transfer feature on your cards
Most of the credit cards come with a balance transfer feature. With this feature, you can transfer the outstanding balance of a credit card onto other bank credit cards. After exploring the balance transfer facilities offered by different banks, you can choose the best fit for you.
Why Balance Transfer?
With a balance transfer facility, you can transfer outstanding balances from a credit card you own to another bank’s card which you hold. Doing this can help clear outstanding dues faster since balance transfer plans come with a lower rate of interest.
You need to stay up-to-date on the promotional offers released by banks time to time in order to increase your interest savings. With some of these promotions, you can transfer outstanding balance onto other bank cards at an interest rate as low as 0% p.a.
Also, there is a range of banks that provide you with rewards points if you use their balance transfer facility. For example, Alliance Bank balance transfer rewards you with TBPs (Timeless Bonus Points) when your transfer outstanding balances onto your Alliance Bank credit card from credit cards of other bank.
Step 4: Choose the 0% balance transfer facility on your credit card
Once you clear off the personal loan debt using your credit card and choose the 0% balance transfer on your card, you can avoid paying the interest on loan amount.
Things to keep in mind
Although the process mentioned above seems easy in theory, it’s difficult to maintain practically. But it can be achieved if you keep the following things in your mind:
- Make sure that you do not exceed the designated credit limit on your credit card when you decide to pay off the loan debt with your card.
- Opt for a balance transfer after researching well in order to find the one that gives you a tenure that is long enough for you to clear off the balance transfer debt.
- Do not miss any payment on the balance transfer because the missed instalment will be charged with an interest rate of up to 18% p.a.
- Do not keep transferring outstanding balances between banks as it may affect your credit score.
- Stay updated on the latest balance transfer promotions in order to find the 0% balance transfer.
- Check for the early termination fee and other fees associated with the balance transfer program.