Personal loans do a good job when the situation calls for it and pay for specific expenses such as a new car, furniture, home renovations, or can be used to consolidate other debt. And as we are regularly solicited, consumer society obliges, it may seem easy and opportune to request an extension of your personal loan in order to reduce your monthly payments. But is this really the best solution? Here are 4 things to know before making the decision to extend a personal loan.
HOW A PERSONAL LOAN WORKS
When one takes out a personal loan, it is necessary to make a skilful trade-off between the duration of the credit and the amount of maturities, the idea being to repay as quickly as possible in order to free oneself as quickly as possible from debts and reduce financial costs, while not having to bear too large a monthly payment. But since the rates on personal loans are often 20, or even 35%, it is better to think twice before asking for an extension of your personal loan. Because who says extension of the duration of the loan says reduction of monthly payments, but also a substantial increase in interest on the loan. However, it is always useful to know that depending on the credit institutions, and if necessary, it is generally possible to postpone:
A payment at the end of the term and twice a year for a fixed rate loan
A payment over the entire term in the case of a variable rate loan.
SAVINGS, A REWARDED EFFORT
If you are considering extending your personal loan in order to contract another loan that will be used to afford new goods that are not absolutely essential or that you can do without for a while, it is better to restrict your train instead. of life temporarily and save money that will finance all or part of the project. And in addition to avoiding even more debt, we limit expensive financial costs.
DEBT CONSOLIDATION, AN ALTERNATIVE SOLUTION
Rather than extending a personal loan at a high interest rate, it is generally better to opt for a debt consolidation loan that will allow:
consolidate all high-interest debts such as personal loans, but also credit cards, personal lines of credit, even car loans and benefit from a lower interest rate
obtain smaller monthly payments without necessarily extending the duration of the credit, a significant differential being generated on each monthly payment thanks to the drop in the rate.
RENEGOTIATION OF THE LOAN, A TRACK TO EXPLORE
Are the current fixed market rates lower than those in effect when you signed your loan? Try to approach your lender to renegotiate the rate. You will certainly have fees to pay, but if you manage to agree on a new reasonable rate, you will soon have to amortize them, while benefiting from a lower monthly payment, without necessarily having to extend the duration of your ready.
Personal loans carry interest rates of up to 35%, hence the interest in using them only in case of absolute necessity. And even this case, you still have to shop around, because there are many solutions to reduce your monthly payments without necessarily extending the duration of your personal loan.