How to manage a long-term loan

If you have recently taken out a long-term loan, you might be wondering if there is anything you can do to reduce the cost of your loan. Fortunately, there is. In this article, we look at a few things you can do to reduce the cost of long-term credit, but first let’s look at how loan term (the time taken to pay off a loan) affects cost.

Many people are attracted by longer loan terms since these allow for lower monthly installments. But a longer loan term is a double-edged sword. Every extra month is another month that you have to pay an admin fee and interest, and a 72-month loan will cost you significantly more than a 36-month loan.

If you already have a long-term loan, you obviously want to prevent your loan from costing you more than it needs to, and that means paying it off as quickly as you can. Here’s two ways that you can do that.


You could use your Christmas bonus to go on an overseas vacation, or you could use it to pay off your loan 6 months early, and then take an even better holiday next year (after saving a chunk on fees and interest). There are probably several places you can save and find a little extra money to put back into your loan.


Obviously, you want to avoid skipping payments if you’re trying to pay off a loan as fast as possible. That includes payment holidays as these will only increase the amount of interest accrued. To avoid having to skip payments, anticipate months when money will be tight (like December or January) and ensure that you have a little extra saved to cover those extra costs.


It might be tempting to extend your loan term to bring down your repayments and free up some money. But such a tactic will only cost you more in the long run and should be avoided unless you absolutely can’t make your minimum monthly repayments. Again, a little planning and discipline can go a long way to helping avoid needing to lengthen your loan term.


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