How to pay off loan amounts as a low income earner
There is a lot of controversy surrounding personal loans and how to pay off loan amounts. This controversy generally refers to the long term benefits that come with a personal loan. Are the repayments worth it?
A common misconception of personal loans is the idea that applying for one will hinder your situation more than it will help it. The reason we call this a misconception is because we know that a loan can be a good safety net. Especially when all else fails.
Imagine falling into a deep, dark money hole and not having anything there to catch you. You’d just keep falling and falling until finally you hit rock bottom. That’s when your debt gets unmanageable. It’s likely that you’ll need a lot more than just a personal loan to save you. So why not knock your money troubles on the head early? Use a loan to help you land on your feet.
Loan providers and loan finders are not here to ‘target’ those in lower income brackets. We are simply here to provide assistance in times of financial stress. You can work as hard as you possibly can and be as disciplined with your spending as you can be. It’s still difficult to constantly be prepared for the unexpected.
Sometimes things just jump out of the woodworks and there’s no way we could have seen them coming. Perhaps your electricity bill is double the size you expected, or maybe your car breaks down out of the blue. This is when a personal loan comes in handy. Not everyone has the kind of support system that will bail them out when life gets expensive. That’s why we’re here. Not to force our services on people but to offer a helping hand when no others have been reached out.
We have put together a bit of information on how personal loans can help all sorts of people. Low income earners included. Our aim is to smooth over any concerns that people may have about the concept of loans. As well as the process of how to pay off loan amounts. Paying off a loan is not as complicated as it’s made out to be. This process can be as easy and stress free as you wish to make it. Keep reading and we’ll tell you how.
How loans work
Unfortunately, there is no such thing as free money in life. This means that whatever money we receive, we must pay it back in some way. You receive an income in exchange for working, you receive Centrelink in exchange for studying or making an effort to look for work, and you receive a loan in exchange for the promise that you will pay it back. Even winning the lottery is done in exchange for going out and buying a ticket. This may be a small price to pay for the potential a large reward but it’s a price nonetheless.
Short-term personal loans work by offering quick cash to those who need it. Not everyone is financially flexible enough to have an emergency fund in place to cover surprise expenses. That’s why loan providers offer an abundance of emergency dollars to get you through the rough times. Once you’re back on your feet you can get stuck in to how to pay off your loan amount.
A personal loan is like saving in reverse. You could put money away initially to end up with a certain amount. Or you could just start with that amount and then put money away afterwards to make up for it. Either way, you’re ensuring you have the support you need to protect yourself from any financial curve balls that get thrown your way.
Modern technology allows for people to apply for loans and receive the cash that same day, or the next day. This means that if you are faced with an expense that the budget doesn’t quite cover, you don’t need to spend days stressing about how you’re going to afford it. This is especially beneficial for low income earners. The last thing you need is extra money stress on top of your already apparent money stress.
Benefits of loans for low income earners
- They have lower interest rates than most credit cards.
- The can be used for a variety of purposes. Some of these include fixing your car, replacing or repairing household appliances, buying Christmas presents, going on holiday and starting a business.
- They are helpful for debt consolidation when you find yourself paying off multiple bills at once. Instead of making multiple payments with multiple interest rates, you can take out a personal loan to pay off those debts and consolidate your payments into a single one with a single interest rate.
- They help to smooth our your cash flow if you’re going through a lull with your income. If you need to bridge a temporary gap, personal loans are very beneficial.
- They can help to boost your credit score if you don’t have the best track record. Repaying a personal loan will help to improve your credit rating as it gives you a great opportunity to make your payments on time and prove yourself as a reliable lessor.
How to pay off loan amounts
When it comes time to how to pay off loan amounts, it’s as simple as setting up a direct debit to cover the minimum repayment amount. You wouldn’t have been approved for a loan in the first place if we, or other loan finders/providers, didn’t believe you were liquid enough to at least make the minimum payments.
The amount that you repay is calculated by the amount of your loan, the length of your repayment period and then the relevant interest that is determined by both of those factors. Basically, this just means that the longer you take to pay back your loan, the more interest you will pay.
Different lenders will charge different interest rates but it is not uncommon for there to be no penalty fees involved in paying out your loan early. This is obviously subject to the lender that you get paired with and is definitely something you should establish before signing your loan contract.
Most of the time, paying out your loan early will save you money on interest charges. However, it may not always be possible to throw a few extra dollars onto a loan repayment. This is completely understandable and that is why the minimum repayment is generally set at an amount that the reasonable person can afford. It’s also up to you to ensure that you are not asking to borrow more than what you can pay back. Know your limits and stick to them.
Essentially it is up to you to decide how much you want your loan to cost you. The loan provider will present you with the repayment period and the interest rates and then the ball is in your court. That’s why we have put together some tips on how to pay off loan amounts the easiest way possible.
Don’t listen to all the naysayers who believe that loans are bad news. Is having help available to you when you need it bad news? Is getting yourself out of a stressful jam quickly and safely bad news? We didn’t think so.
How to pay off loan amounts as a low-income earner
Make fortnightly payments
Making 2 half payments per month instead of the usual 1 full monthly payment will help you accomplish 3 things. These include:
- Paying less interest as your payments will be applied more often
- Making more payments as there are 26 fortnightly payments in a year instead of 12 monthly ones
- Shaving several months off the duration of your loan
It is important to first establish the terms and conditions of the loan with your lender. This is because some lenders may charge fees for any extra payments. Doing your research will ensure that you are paying off your loan in the most affordable and economical way possible.
Round up your payments
Once you have established the terms of the repayment process, you should start rounding up the amounts that you pay. You don’t need an abundance of extra cash to do this. It is simply a matter of adding little bits here and there to make your payments even.
For example, let’s just say that your minimum monthly repayment comes to $167.85. To round it up, you could make a payment of $200. At the end of the 12 months, that’s an extra $385.80 you’ve paid off your loan. That’s almost 2 months of interest you’ve knocked off your loan by just adding an extra $33 a month onto your repayments. In the greater scheme of things, sparing an extra $33 a month isn’t a lot compared to the savings it will bring you in the long run. This is an effective and easy way how to pay off loan amounts.
You could also round up your payments by adding an extra amount on each time. You could vow to add an extra $50 onto your payments each time. Say you do this for 3 months, that’s an extra $150 you’ve paid off your loan in just 3 payments. Then if it comes to a time when perhaps it’s not affordable to do that, you’ve still made a significant dent in the term of your loan.
Try and make some extra cash
Have a rummage through all your belongings and sell the ones that you no longer need or want. This could be anything from clothing to furniture. You could also offer up a service in exchange for cash. Examples of this include babysitting, tutoring, lawn mowing or dog walking.
Even if it’s an extra $30 here and $15 there, those extra amounts will definitely add up over the course of your repayment period. The aim of this is to put any extra cash that you earn outside of your usual budget towards paying off your loan.
The end of the financial year is always a time to take advantage of. Especially if you’re lucky enough to receive that sweet sweet tax return. Sure, put some of it aside to ‘treat yoself’ but, seeing as it’s money you’ve never really noticed missing in the first place, why not use it to pay off loan amounts?
Make one extra payment
If you don’t have the cash flow to constantly pay above the minimum amount, you could achieve the same result by making one extra payment per year. This is when that tax refund would come in handy, otherwise you could divide your monthly payment by 12 and then add this to all future payments.
For example, let’s keep your monthly repayment as $167.85. You’d therefore, be adding an extra $14 onto your future payments. This would mean that you are making one extra payment each year as that $14 over the course of 12 months would equal your standard monthly amount.
Be realistic with your budget
If you are a low-income earner, it’s always important to plan your budget to match your earnings. You never want to be spending more than you earn so it’s necessary to establish the expenses that are 100% necessary and the ones that aren’t as much. Sit down every pay day and write out a list of all the necessary expenses you have throughout the week.
These would include rent, groceries, if any bills are due (e.g. internet, electricity, phone), petrol/ bus money, and any other regular expenses you may have each week. Then go through all your other costs that aren’t as necessary. These may include your $5 daily coffee, the $10 you spend on lunch every day or the $50 you spend on after beers every Friday.
From here, it’s then easy to go through and make some necessary cuts to your weekly spending. Think about ditching your barista coffee for the instant coffee they offer in your office. It may not taste as good but it will still get the job done and save you money daily. If you spend $5 on a coffee every day during the work week, you’d be able to put an extra $25 a week towards paying off your loan just by lowering your coffee standards.
Perhaps you could start making your lunch for work. The groceries for a week’s worth of lunches would be the fraction of the price of buying out every single day. You could also limit the amount of beers you drink every Friday, or maybe even limit the number of Fridays you spend drinking. It’s probably not completely necessary to spend a day’s worth of wages at the pub every week. Plus, the less often you do something, the more enjoyable it becomes.
Don’t feel ‘aloan’, apply for one
We hope that this has helped you form perhaps a more positive feeling towards the concept of taking out personal loans. Here at Loans NZ, we believe we are in the business of helping people who have limited places to run to. Low income earners have a certain sense of vulnerability when it comes to unexpected expenses. It’s not always possible to be ready for them when they pop up and, once again, that’s what we’re here for.
At the end of the day, you will only be approved to borrow an amount that is affordable for you to pay back. We’re not interested in making your situation more difficult which is why we have certain criteria in place. To protect you from further hardship. If a loan is something that you think could really benefit you for your current stage in life, get in touch with us. We’re always around and happy to help! Don’t feel ‘aloan’, apply for one.