Personal Loan Calculator | FASTA Loan Repayment Over 6 Months
While getting approved for a loan means you have access to cash that you previously didn’t have, you will have to repay that loan over time. But when life becomes unpredictable, and circumstances jeopardise your ability to repay a loan, what do you do?
In this blog post, our Head of Collections, Nerine van Zijl, shares her insights into what a loan repayment is, why they are so important and her tips to help you plan for your loan repayments.
What is a loan repayment?
It is the total amount you will pay monthly on the amount you borrowed from a credit provider. The monthly repayment amount (also known as the contractual instalment) includes interest and fees charged.
Always start by understanding what you can reasonably afford to pay monthly. You can enter how much you need to borrow, and you’ll be shown the range of repayments based on the number of months to be paid as well as the interest rate charged. The lower your interest rate, the less you pay back every month. That also means that the total amount you pay back will be less.
For large value loans such as home loans the interest rates are typically lower, although this is over a much longer repayment period.
The higher end of the interest rate scale will be for personal loans. And the highest interest rates are usually applied to borrowers with a lower credit score. You can learn more about understanding your credit score here.
Why are loan repayments important?
There are several different parts that need to be considered when it comes to loan repayments.
When you borrow money from a credit provider, you not only enter into a legal agreement, but it is also the start of a trust relationship between you and the credit provider.
If you skip any payments, additional interest and fees will be charged to the account – this means you end up paying more than initially planned. It is essential that you contact the credit provider to discuss the options available to you. It will not benefit you, in any way, to avoid calls from the credit provider to make payment arrangements.
If you honour your commitment, the trust relationship grows which means that if you need money in the future, you will have a greater chance of being assisted due to an existing trust relationship and a good record of honouring your previous commitments.
Does missing a loan repayment affect one’s credit score?
If you do not honour your commitment, the missed payments are reported to credit bureaus. This is significant because it negatively impacts your credit score – your credit score determines if you can get credit and how much you can get. This applies to personal loans, vehicle, and home finance. Most employers now do a credit check and this could also impact your ability to get the job you want.
Tips on how to plan for loan repayment
Remember that a good budget will always help you to prioritise your spending and enable you to stay on top of your savings and expenses.
- Create or download a budget template.
- Determine where you could be overspending such as takeaways, clothing, gadgets, entertainment, etc.
- Set financial goals for yourself such as saving for a holiday, settling an outstanding debt, and putting together an emergency fund.
- Another strategy is to divide your income using the 50/20/30 rule. It is a simple approach with a big impact. The allocation works as follows:
- 50% for necessities (for example rent/bond, water and electricity, food, transport, etc.)
- 20% for long-term savings (for example emergency savings, educational investments, retirement, etc.)
- 30% for lifestyle spending (for example home improvements, kids activities, etc.)
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