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Can I make extra repayments to a personal loan?

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Paying off your personal loan is a good feeling but paying it off early by making extra repayments is an even better one.

If you have a personal loan, you may be wondering whether you can make extra repayments, and what the benefits and disadvantages – if any – may be.

How personal loan extra repayments work

Some personal loan lenders will allow you to make additional repayments on top of your regular loan instalments. This may help you to reduce the loan principal much faster than if you made the minimum-required payments. Plus, by reducing the principal amount you’ll potentially pay less interest over the life of the loan.

For example, if you had a 5-year, $20,000 personal loan at a rate of 6%, if you made only the standard $387 monthly repayments, you’d pay $3,199 in interest. However, if you paid just an additional $50 a month, you’d shave 5 years off the loan and only pay $2,768 in interest.

Personal loan Monthly repayments Total interest charged Total cost of loan
No extra repayments $387 $3,199 $23,199
Extra repayment of $50 a month $437 $2,768 $22,768

Source: RateCity.com.au. Note: Figures based on hypothetical 5-year, $20,000 personal loan at 6%. Does not factor in fees or rate fluctuations. Assumes making $50 in extra monthly repayments from beginning of loan.

However, what you pay in interest is how the lender makes its money, so not all lenders will allow you to do this. Some may even charge you a fee for making extra repayments. It’s worth reading the product disclosure statement associated with the personal loan to double-check this first.

What other features may a personal loan offer?

If your personal loan lender allows you to make extra repayments, chances are they may offer another potentially competitive feature as well: a redraw facility.

A redraw facility allows personal loan customers to draw down on some, or all, of the extra repayments they’ve made over the years while repaying their loan. This may come in handy in the event of financial stress, such as overdue or unexpected bills, or even if you just want to finance a family holiday.

Keep in mind that once you withdraw any extra funds you’ve paid into your personal loan, you’ll be increasing the principal amount owing. This in turn may increase the amount of interest you’ll be charged and may mean your regular repayments increase.

Some personal loan lenders may require you to pay a certain amount in extra repayments before you can access these funds. Also, personal loan redraw facilities are typically reserved for variable rate loans. If you’re in need of a fixed rate personal loan, this feature may not be available to you.

What are the pros and cons of making extra personal loan repayments?

Making extra repayments on your personal loan can go a long way in chipping down an otherwise intimidating debt. But there are both risks and benefits that are worth weighing up.

Benefits of extra repayments on a personal loan:

  • Pay off your debt quicker – The most significant advantage of making extra repayments is that you may be able to shave months off your loan term.
  • Pay less interest – The lower your principal amount owing, the less interest you’ll be stung with.
  • Access funds – If your lender offers a redraw facility, you may be able to access these funds when you need them.

Disadvantages of extra repayments on a personal loan:

  • Your current lender may not offer it – If you’ve already signed up for a personal loan and want to make extra repayments, you may discover your lender does not permit this. If this I something you really desire for your personal loan, it may be worth considering refinancing.
  • Fees and caps – Some lenders may charge you a fee for making extra repayments. And some may cap the amount you can pay, or even limit the amount you can withdraw if using a redraw facility.
  • Variable rate only – Generally speaking, making extra repayments or having a redraw facility may be reserved for variable-rate loan customers. If you’re set on a fixed rate loan, check if extra repayments are allowed before proceeding.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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