The prime rate can often influence the rates of loans and if you have a loan currently, then you could worry if the prime rate increases about the effect it might have. Whether it has an effect will depend on the type of loan you have but even if there are increases in your interest, there are things that you can do which might mean that you do not have to pay more.
Fixed rate loans
If you have a loan which has a fixed rate of interest then your repayments will not change if the prime rate changes. If you are not sure whether you loan has this type of interest then you should contact your lender to find out. They should be able to very quickly check and see what type of loan you have. They will also be able to let you know, if you do have a variable rate, how much it might go up if at all.
Variable rate loans
If your loan has a variable rate and the rate has gone up or you are worried that it might go up, then there are several things that you can do to prevent you paying more money. To start with it is wise to see whether there are other loans that you can switch to which are cheaper. You will need to do some research to compare rates by different lenders to see whether there are any that are significantly cheaper than you are paying. It is wise to find out whether rates have gone up lately as if they have not, they may do soon in response to that prime rate increase. However, if they are still significantly lower then even if they do go up they may still be cheaper than you are paying. You may want to check out details of the companies though to see what sort of service to expect from them so that you can work out whether you are likely to get good value from money. You will also need to check whether there are any costs to move. You may need to pay a fee to move form your current lender and you may need to pay a fee to set up a new loan. These costs may add up to such a high value that you may feel that it is not worth switching but it is well worth checking out the details just in case.
Another approach is to try to reduce the amount that you owe. As interest is calculated on the amount of money that you owe, then by owing less, your interest payments will be lower. Some loans will not allow this or will have a charge for this but others will not. It is therefore worth finding out and calculating, in the same way that you did above, whether it makes financial sense to do this. You may wonder how you will find money to pay off you loan but there are lots of options:
- Use your savings – if you have any savings then it can be wise to use them to repay any debt that you have. This is because it is extremely rare for the interest that you earn on savings to be higher than interest you pay out on a loan. You may want to keep the savings for an emergency, but you can use a loan for this if you really want to, but hopefully you will not need it and once you repay the loan you will be able to start building up your savings again. It can be hard to part with savings when you have worked hard to build them up but you will be able to build them up again in the future and it will be much easier when you are not making loan repayments as well.
- Spend less – if you spend less money then you will have more available to repay the loan. It is not always easy to do this but there are some things that you can do to that may be fairly easy. If you look at all of the things that you buy, there may be cheaper places that you can go to and therefore buy the same things and save money. This does not just apply to things you get form stores but also contracts, financial products and utility bills. Compare your suppliers and see whether there are cheaper options that you can use.
- Earn more – you might be able to find some ways to earn some more money which will help you to repay more of the loan. It may be possible for you to earn more money in your current job, perhaps by doing some additional hours or you may need to look at other options. You might find, for example that taking on a second job could help, doing some freelance or online work or even making money by selling things you own Having a yard sale could raise some money that you could put towards it.
Having a vacation can make a big difference to many of us. Whether we go with family, friends or by ourselves, it can help us to forget about our day to day lives and give us some much needed relaxation time. Many people will go regularly and others occasionally. However, a vacation will cost money and many of us find them rather too expensive to manage without a loan. Therefore, we may be left wondering what type of loan will be the best for us to use. There are many factors that we need to consider before we make up our mind.
- How much will the vacation cost? – to start with you will need to know how much the vacation will cost you. Even if it is just an approximate figure, it will be useful so that you can identify which loan type will work. Some loans only will allow borrowers a few hundred dollars and some will allow thousands and therefore some loans may not be suitable and some may lend too much money. It is best to borrow as little as possible as all loan cost money and if you can borrow less, then you will have to repay less and the costs of the loan will be lower.
- How much can I afford to repay? – it is equally important to calculate how much you can afford to repay. All loans have to be repaid and most will have regular monthly repayments. These will vary depending on how much you borrow but also on the type of loan that you choose. If you cannot manage the repayments then you at the very least, you will end up paying more because of fees and charges but you may also end up in even deeper trouble. So, it is best to take a look at your checking account statements and see what you will be able to afford. It is good to look at a selection and get an idea of how much on average you spend each month and how much you earn so that you will be able to calculate the difference and work out how much you can afford to pay for your loan repayments.
- How much will the loan cost? – It is worth knowing how much the loan will cost you in total as well as how much the repayments will be. The loan costs will allow you to know how much extra you are paying for the vacation so that you can decide whether you think that it was worth it. You should also be able to see how much you will repay each month and that will allow you to see if you can afford that amount.
- Will it be worth it? – trying to decide whether a loan is worth it can be quite tricky. You will need to think about whether you feel that the cost is justified as well as whether you think that you can afford it. It is also really important to think about whether the loan might be a source of stress for you. Some people generally find borrowing stressful and others only find it stressful if they are struggling with the repayments. Either way you need to carefully consider whether there is a chance that the loan will make you stressed. If there is then you may need to consider whether it is worth it. Taking a holiday so that you can be relaxed, but then returning to a situation where you are more stressed than you were before is not ideal. Obviously, you may be taking the family on holiday with you and the benefits for them might be greater than for you and you may still think that it is worthwhile.
It can be a difficult decision to make, especially if it involves other people and trying to evaluate it in a business-like manner and keeping emotion out of it can be almost impossible. You may benefit from asking other people and discussing it with someone that is outside of the situation. You also need to think about the risk of taking a loan and whether you feel it is worth it. It is also worth considering alternatives, such as having a cheaper vacation, saving up for a vacation at a later date and things like this. Only when you have considered the situation and all of the alternatives will you be in a position to make an informed judgement. At this point you should then be in a position to look at the different loan types and decide which of them will be the best and which you will be able to afford. You will be able to take into account how much you can afford to pay and the cost of the loans as well as how much you can borrow and that should enable you to make the right decision as to which loan will be the best for you.