Loans and mortgages are subject to an interest rate, either a fixed rate or variable rate. The fixed interest rate remains constant while the variable interest rate follows the current rate based on prevailing bank rates. When bank rates go down, you will be paying less interest while if it goes up, you will be paying more. During the pandemic, it is imperative to properly manage your loans and mortgages to avoid paying high interest in the future.
Here are some ways of managing your variable-rate loans.
Continue Paying Your Loan
The trend in the UK indicates a continuous rise in interest rate. The rise might not be too steep, but if you have borrowed a few thousand, the cost of your loan could increase drastically. If you have a loan of £10,000 and the payment period is five years, you might have to pay more than you had projected when you made the loan. During this pandemic, banks and other lending companies allow clients to avail of the payment holiday for at least three months. A payment holiday of three months might give you a reprieve; it would have an impact on the amount that you must pay. As much as possible, it would be a wise move to continue making the payment if you can afford it. You could save a significant amount in terms of interest.
Avail of Government Financial Support during the Pandemic
In the UK, the government provides financial assistance to people that lost their job or have their salaries cut due to the closure of many businesses. Please find out how you can avail of the financial help and use it in paying your loan to avoid having to pay more interest in the near future.
Cancel Credit Cards to Reduce Debt
Credit cards may cost more when variable interest rates rise. Now is time to decide whether to cancel or continue your credit card. Continuing with your credit card can be costly in the coming months. To get away from paying a high – interest rate, you can cancel your credit card. Aside from helping you avoid the random purchase of unessential items, you would not suffer from the impact of the rise in interest rate.
The same applies to car and house loans. If you have the money to pay off existing mortgages, now is the time to do it. If you think about enjoying payment holidays, think about the interest rate that your debt could incur after three months.
The pandemic might bring low- interest rates in consideration with the financial difficulties that lockdowns bring. Once business improves, expect a surge in interest rate. Pay your payday loan in advance if you can afford it now to reduce your debt that is bound to have high interest in the near future.
However, there are debts that you cannot pay in advance or might charge you a fee for advance payment. However, you can compare the penalty that you must pay for paying in advance and the projected increase in interest rate. If the penalty for advance payment is less than the projected interest increase, making an advance payment will be advantageous to you.
Go for the Best Deal
People that need of a loan can avoid the impact of the rise in interest rate by going for the best deal. Shopping around for a loan before applying to one lending company will save you from credit checks that can affect your credit rating. Always compare interest rate, repayment period, and other terms and conditions such as penalty for delayed payments and early full payment of the loan.