Nearly 43 million Americans have personal loan debt as of 2020, carrying an average balance of $16,458, according to a report from the credit bureau, Experian. Without a clear strategy for repaying that debt, many consumers will be stuck paying thousands in interest while they pay off their loans.
But there's some good news for personal loan borrowers: It may be possible to repay your debt faster and save money over the course of your loan. There are a few strategies for achieving this, such as those outlined below:
- Refinance to a loan with a lower interest rate
- Work on improving your credit score
- See if you qualify for an APR discount
- Put cash windfalls toward the balance
Read on to learn more about saving money on a personal loan in the analysis below. If you choose to refinance your personal loan, you can compare interest rates on Credible without affecting your credit score.
1. Refinance to a loan with a lower interest rate
Whether you're just now taking out a personal loan or you're searching for a new loan with a lower interest rate, it pays to shop around.
Personal loan rates vary widely — Credible's partners offer rates between 2.49% and 35.99% APR. The rate you receive is based on a number of factors, including your credit score as well as the loan amount and length.
If you already have personal loan debt, you may be able to qualify for a lower rate than what you're currently paying. See how the monthly payment and total interest could change for a borrower with a 3-year, $15,000 personal loan if they got a new rate:
- 12% APR: $498 monthly payment, $2,936 in total interest
- 10% APR: $484 monthly payment, $2,424 in total interest
- 8% APR: $470 monthly payment, $1,922 in total interest
Look at your loan agreement to find your current rate, and visit Credible to compare personal loan interest rates across multiple lenders for free in just 2 minutes. Once you have a good idea of your estimated interest rate, use a personal loan payment calculator to determine your savings and see if taking out a new personal loan to repay your current loan debt is worthwhile.
2. Work on improving your credit score
Since personal loans are unsecured and don't require collateral, banks and lenders rely on your credit history to determine your likelihood of repaying the loan, as well as the interest rates you're offered. So while you may be able to get a slightly lower interest rate by simply shopping around, improving your credit score and then reapplying to get the lowest rate possible will save you even more money in the long run.
Before you shop around for a new personal loan, try to achieve a good credit score or better, defined by the FICO scoring model as a score of 670 or above. But the best personal loan interest rates are reserved for borrowers with exceptional credit scores of 800 or higher.
You can get your free credit score and credit monitoring services on Credible.
3. See if you qualify for an APR discount
Select personal loan lenders offer a discount if you authorize automatic payment withdrawals from your bank account.
If you don't currently have automatic payment withdrawals set up, get in touch with your personal loan lender to see if you're eligible for a discount.
4. Put cash windfalls toward the balance
Cash windfalls, like a tax refund or stimulus check, can be used to help you pay down the balance of your personal loan faster and save you money on interest in the long run. Just be careful to read your loan terms before doing so, as some personal loan lenders charge a prepayment penalty for paying off the loan early.
Prepayment penalties aren't very common, though, and there are many lenders that offer no-fee personal loans. You can visit Credible to compare personal loans, some of which do not charge fees like a prepayment penalty.
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