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4 Reasons to Use Simple Interest Loans

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If you are looking at taking out a loan, no matter what the reason is, it’s important to find one that provides manageable rates and terms. Simple interest loans are one of the most sensible and affordable ways to borrow money.

Let’s take a look at some of the reasons why you should consider using a simple interest loan.

They offer easy to manage set monthly payments  

With a simple interest loan, you have manageable and set monthly payments. Simple interest is worked out based on the principal amount borrowed, so the loan provider should be able to tell you how much you need to pay back in total to clear the loan before you even sign on the dotted line.

Knowing the full costs upfront makes it much easier to budget for and handle your finances going forward.

You can reduce the amount you pay on interest

If you can afford to put a bit more money towards your loan payments every once in a while, you can reduce the overall amount that you have to pay back.

When you make a regular monthly payment, it gets split between paying the interest for that month first, then the rest goes towards the principal. If you then make an additional payment to the loan, that entire amount will go towards the principal as the interest has already been taken care of for that repayment period.

If you lower your principal balance, you also reduce the term meaning you’ll pay less interest overall.

They can be paid off early

Although you may agree to take a simple interest loan out over a set period of time, it doesn’t mean that you can’t pay it off quicker! If you make overpayments on top of your regular repayments, it will reduce the principal balance and, in turn, the total interest due. This means that any further monthly repayments are paying down the debt even quicker.

There may also be the option to pay off your loan early by making a one-time payment to clear the balance. Most reputable lenders won’t charge you a fee for paying off your loan early, but some providers will – be sure to check the t&c’s of your loan agreement.

You’re not paying ‘interest on interest’

The biggest benefit of having a simple interest loan is that you are never paying interest on interest.

With financial products such as credit cards or compound interest loans, not only are you paying interest on the principal amount borrowed – but you are also paying interest on the previous month’s interest payments.

This means that less of your monthly payment goes towards paying down the principal, and in some cases where interest rates are high, you may end up not paying towards the principal balance at all.

Often this can lead to a cycle of being perpetually stuck in debt unless you can afford to make bigger repayments month on month in order to get ahead of the interest being charged.


The bottom line

Simple interest loans give you a lump sum payment with manageable monthly repayments, without the risk of any nasty surprises in the form of excessive interest charges. You know the full cost of borrowing upfront which means you have greater control over your money and financial future.


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