If you have a loan, you may think that you are just stuck with that lender and the rate that you are on. However, this may not be the case and it is worth investigating to find out whether you can switch lenders as it could save you a lot of money.
Some loans such as student loans or payday loans cannot be moved. You will just have to stick with them until they are paid off. However some of the more long term loans such as personal loans or mortgages may be able to be switched.
With a personal loan, you will tend to have quite a few years to pay it off. This means that it can be worth switching if you find a better deal because you will save a significant amount of money in some cases. You will need to check though. Firstly find out whether the loan has a penalty for paying it off early as this could be quite high and cancel out any benefits of switching. Then see what is available and calculate whether it is worth changing, making sure you check for any admin fees charged by the new company. Then you will have to go about switching. This is not like switching a mortgage, which is easier and discussed later. You will have to apply for a new loan and if it is approved you will need to use it to pay off the old one. Obviously this takes a lot of discipline because you will need to make sure that you do use it to pay off the loan and not be tempted to spend it on something and get into more debt. As an alternative you could ask your current lender whether they have any better rate loans you could switch to.
With a mortgage there will be quite a few costs associated with changing lender. The new lender will want to check that the property is worth more than the value of the mortgage and therefore they may want a survey done and they may want to look at the documents associated with the property. They will be sure to charge an admin fee for this. You original lender may charge a fee for repaying the mortgage early as well. Although these fees could really add up, it could still be well worth switching. The difference in interest rate could be so significant that it is worth it. Do the maths and check what a difference it will make over the rest of the term of the mortgage. Of course, there is never a guarantee that the interest rates will stay as they are and it could be that more favourable rates appear elsewhere or the lender you choose puts there’s up. Think about how long you will have to be with the new lender to cover the costs of moving and then decide whether you are willing to take the risk of moving. It is not a significant period of time then it is probably worth it, but you may like to see a financial advisor to check if you are not confident in making this decision by yourself.
Another big way to save money on loans by switching lenders is to change the type of loan that you have. Some types of lending, such as payday loans and unauthorised overdrafts are much more expensive than other types such as personal loans. Therefore it is worth looking to see whether you can borrow money more cheaply and use that to pay off your more expensive loans – Emu Loans, a UK payday loan company is a good example of this. You need to start by finding out how much your current borrowing is costing you and then looking at the alternatives to see if they are cheaper. You may be paying fees and charges as well as interest so check that and see how it compares. Beware though as advertised rates are not always those offered to customers. So if you see a good loan rate, find out whether that rate would be available to you as often lenders will give a less favourable rate to those who have a lower credit rating. So make sure that you check this before you apply.
Switching to zero interest lending can be the best way to save money. You can do this with a zero interest credit card, for example, although there may be a fee if you transfer a balance over. However, it is worth being careful with these sorts of things as once the zero interest period is over, the interest can be extremely high. This will mean that if you have not managed to pay off the debt by then, you could end up with it growing very rapidly.
So there many options for you to save money on your loans and it is worth investigating them to find out whether you can save money as in some cases the savings can be quite significant.