If you take out a loan or are thinking of taking one out then it is important to make sure that you will be able to afford the repayments. However, it can be tricky to know exactly what you have to do to find out what those repayments will be and know whether that is an amount that you can afford. Then knowing what to do should you struggle with repayments is also important.
What are the repayments and can you afford them?
To find out how much you will need to repay each month you should be able to simply ask your lender. They should be able to easily find out for you how much you will be expected to pay. It is worth noting though whether the interest is fixed or variable. If it is fixed then you will be paying that amount all of the time or always during the fixed rate period. If it is variable then it can change, meaning that it can go up or down, making your payments rise and fall. If payments go down this will not be a problem, but if they go up then you will need to be sure that you will be able to afford them. They are likely to go up if the base rate increases, but the lender may decide to put them up outside of rate changes as well.
In order to work out whether you can afford these repayments you will need to make sure that you have enough spare money in your bank account each month. To find out you need to take a look at your bank statements and see what they normally say for each month. If you tend to have money left over and it is more than enough to cover the loan then you should be fine. However, if you do not, then you need to be cautious. Think about where the money is going and how easy it will be for you to make sure that you have enough. It might be that you transfer some money each month into a savings account and you could put that towards the loan repayments instead. It may be that you always spend all the money you have and you could cut back on that spending. It is worth giving it some thought.
Top tips to ensure you can always afford them
You may have worked out a way to afford the repayments to start with but you need to be confident that you will always be able to afford them. There are lots of things that you might be able to do and it is worth being aware of them and thinking about them so that you can do them if you need to.
- Always compare prices – comparing prices on everything that you buy means that you will not be spending more than you have to. Obviously, you do want to make sure that you get good value for money, but if you are buying a specific item then compare retailers to get it for the cheapest price you can.
- Consider second hand – it is worth considering buying second hand items. Things like books are very easy to buy second hand both in shops and online and you pay a fraction of the cost. You can also easily buy clothing second hand as well as children’s toys and you could save a significant amount of money by doing so.
- Choose cheaper contracts – if you have contracts for your utilities, mobile, television, broadband and landline then look for cheaper alternatives. Think about whether you really use what you are paying for or if you can get away with paying less and not really missing out much. It is also worth comparing different suppliers as they could save you a lot of money.
- Only buy what you need – it is good to think about everything we are buying and whether we really need it. There are lots of things that we could potentially buy for ourselves, perhaps getting brand new things or replacing things that are getting old fashioned or beginning to wear out. Think about whether you can hold on until you have finished repaying the loan before you buy these things.
- Sell things you do not need – if you have a lot of things at home that you do not really use, then you could sell them to make some money. These will not help you out permanently as you will only be able to sell them once, but they could help you out of a tricky situation should you need some money quickly. If you have a lot of items then this could be more helpful and could help cover the cost of more than one payment.
- Work more hours – it may be that you will be able to increase the amount of hours that you are working so that you have more income and that will be able to help if you start to struggle with the repayments.
- Apply for a pay rise – it could be worth seeing whether you can get a pay rise. These can be tricky to get, but make sure that you are working hard and proving that you are worth it and then ask to see whether it is possible.
- Overpay when you can afford to – it can be good to overpay a bit on the loan when you can. This means pay more than necessary back on it. This will allow you to repay it more quickly and the interest charged will be less so the loan will be cheaper. This could bring down your monthly payments which will help you to afford them. Do check though, as there could be a fee associated with this called an early redemption fee and it may not be worth doing if this fee is too high.