BDO Money Matters | By Christine Dychiao for Yahoo! Southeast Asia -Tue, 20Nov2012
Borrowing money definitely costs money, but you can also minimize the cost of your loan by keeping these practical, money-saving tips in mind:
Shop around for rates
Before committing to a loan agreement with the bank you’ve been banking with for years, make sure you shop around and compare rates across a number of financial institutions. Also, do not discount credit cooperatives you may borrow from. Watch out for special promotional rates too, it pays to keep yourself updated on every potential lender’s loan offerings.
Lower your principal
Try to limit the amount you are borrowing to a minimum. When you have extra funds, try and pay more than your required monthly payment. This will lower your principal, which also reduces the interest you have to pay over the life of the loan.
Shorten your loan term
By simply looking at a loan table, you can see that the longer the tenor of your loan, the higher the interest rate. As much as possible and as your liquidity would allow, always go for the shorter loan term. Yes, your monthly amortization will increase, but you also reduce your overall interest payment.
Take advantage of prepayments
Should you find yourself with extra funds on hand, remember that Article 137 of the Consumer Act of The Philippines gives the consumer the Right to Prepay. As a borrower you may prepay in full or in part, at any time without *penalty, the unpaid balance of your consumer credit transaction. This reduces your outstanding balance, reduces the tenor, as well as the overall interest costs of your loan.
*Note however that banks may charge a minimal processing fee for full payment of your loan before maturity.
When it comes to buying a car or a home on loan, every centavo counts. You do not want to find yourself squeezed to a point that finances become too tight. It pays to look for ways in lowering the cost of your loan, so you can truly enjoy the fruits of your labor.