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Dec 9, 2016

Increase the Repayment Term to make Smart Loans more Affordable

Borrow a grand at twenty percent rate of interest for three months. You would end up repaying sixteen hundred if the interest is charged per month. If the rate of interest is levied annually, then you would repay less. But in neither scenario would you find it more affordable if you consider shorter terms. For a given loan amount at a preset rate of interest the loan will always be more affordable when you consider a longer term.

You will end up paying more interest. It could be monthly interest or an annual rate of interest. The total amount repaid will be higher as the term increases but you will pay less every month. At times, repaying a hundred or even a thousand pounds more over a year becomes more convenient than repaying two hundred pounds in one time.

Many people might find this rather odd because no one wants to spend more money in repayments than what they absolutely have to. But think of it from another perspective. What if you don’t qualify for some smart loans because the amount is too high for your income or the lender just doesn’t find your credit score acceptable enough? You would not get the loan to begin with. Having a smaller loan amount may not cater to the purpose of borrowing in the first place. In such circumstances, a longer term will be helpful. The lender of short term loans will see that the reduced monthly installment is more bearable for you and you can keep repaying for the entire term.

Mitigating risks is not only the purview of the lender. Borrowers too must reduce risk. You should not squeeze your monthly budget to an extent that you choke your financial health. You must have some room to accommodate sporadic or surprise expenses.

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