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.