Four Easy Tips to Minimise Your Loan Interest Payments
Jun 05, 2024 Posted by Brittany Cunningham
If you’re looking at financing your next piece of kit you probably have a goal to get the total interest payable down as low as possible. The good news is that there are some easy ways to achieve this.
In this article, you will learn four easy tips to keep your interest rate and therefore total interest paid on your loan as low as possible.
Tip: when looking at your total interest payable don’t just look at the interest rate. Whilst that’s important it’s not as important as the bottom line amount of interest you will pay. After all the bottom line amount of interest you will pay will be what’s coming out of your back pocket.
Upfront Deposit
So, the biggest pointer when driving that interest rate down is the deposit. Putting down as much as you can on an upfront deposit shows the finance company that you have skin in the game and you are committed to this deal. A good healthy deposit would be around 25% to 30%. You can skip the deposit altogether if that suits your cash flow better or you can put down more.
Term Length
Next, you will want to take a look at term length. Basically, the faster you pay of the loan the less interest you will pay so go for the shortest term you can afford. Don’t shortchange yourself though you don’t want to go for 12 months and then have to refinance. Make it comfortable but don’t unnecessarily extend.
Repayments
The closer the repayments are the less interest you will pay so aim for a weekly or monthly repayment, if that doesn’t suit your cash flow go for a longer repayment like bi-annual or annual. One thing you can do to bring interest down is factor in extra payments. So, for example, if you commit to monthly repayments but you know some months you can pay extra i.e. the milk cheque might be due or you might be getting money in from one of your contracts factor that into the finance. Committing to making those bigger payments sooner in the repayment schedule will bring the total interest down. (A good finance company will be completely flexible for you here allowing you to build in seasonal repayments, or to skip months where required.)
GST.
Committing to pay the GST back in the 3rd or 4th month will make a difference to your total interest as well. This is two pronged tip not only does it lower your interest as you're paying more money up front in the loan schedule. You can also choose to pay the GST in the month in which you do your BAS meaning you can claim the GST back from the Government.
Following these four tips will ensure that the total amount of interest you pay is as little as possible. Remember its pay as much off as you can as fast as you can and commit to this upfront so you can save on interest.
Next Steps.
To have a no obligation, confidential conversation about equipment finance on your next purchase please complete the enquiry form and a member of the Delmade team will give you a call.
