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Reduce Your Monthly Loan Repayments – Here’s How

How to Reduce Your Monthly Loan Repayments

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

So, you have a loan and want to cut its cost. The good news is that the record-low loan rates open the way for you to do that quite easily. Unfortunately, this doesn’t also mean that you can save some money too as this has become rather challenging nowadays. In this step-by-step guide, you will be introduced to ways that can help you make the best deal with the lender, as well as a Loan Switching Calculator that will allow you to see if you can actually cut the costs of your existing loan(s). Below, are two simple, yet very effective, steps for you to follow:

Step#1: Contact Your Existing Lender & Discuss Early Settlement

Always start whatever financial quest you have with your current lender. First of all, ask them how much it will cost you to pay off your current loan now. Some lenders apply early settlement charges (up to 2 months’ interest) so you need to know of this before you do anything else. The full debt, including early settlement charges (if applicable), is called the settlement figure and is what you need to borrow on your new loan.

If you don’t know already, also ask what your monthly repayments will be (the exact number) and the duration of the loan. Those two numbers are necessary so you can use the Loan Switching Calculator below or our Loan Total Repayment Amount Calculator. Then, finding out if you can save will be a walk in the park.

Important Notes:

  • Before 2005, loans had penalties for early repayment. Since then, this has somewhat stopped. If you are charged with an early penalty fee nowadays, it won’t cost you more than 2 months’ interest, which is the maximum amount that can be applied. The total amount, though, is dependent on the duration of your loan and how much of the current debt you are paying off.
  • Beware, if your loan was taken out before 2005 (June) because these loans usually have a hidden penalty for early repayment due to extremely complicated, old-style Rule of 78 interest calculations that eventually do NOT reduce the amount you owe if you decide to pay the loan off early. Instead, the formula uses your money to pay off the interest. Ask your lender if you are caught by this.

Step #2: Find Out If You Can Save

Once you have all the details from both the old and the new loan, plug them into the Loan Switching Calculator. Are you happy with the numbers you get? Then do apply for that new loan. If you are accepted, use the cash from the new loan and pay off the old debt. Congrats on making a great money-saving decision!

Final Notes:

  • Remember that only 51% of those accepted are given the rates advertised (that is what they are usually referred to as “representative” rates). As mentioned before in this guide, it all depends on your credit score and how much you need to borrow.
  • When using the Loan Switching Calculator, take note that it assumes the duration of the new loan will be the same as the remaining number of months of your old loan.


Are you struggling with debt?
Are you struggling with debt?
  • Affordable repayments
  • Reduce pressure from people you owe money to
  • Stop interest and charges from soaring