All About, How Can You Reduce Your Total Loan Cost.

Loan Cost

Loans are indeed essential when we need financial support at certain times to purchase a home, vehicle, plot, education, or anything else. If you are thinking of taking a loan for any purpose then it is important to understand the cost of payment and how to reduce the loan cost as well.

If you are looking to reduce the cost of your student, personal, or any other type of loan then this article is going to be beneficial for you. In this article, we are going to describe the key aspects to make reducing the payment as lower as possible.

What are the total loan costs?

Loan cost refers to the cost that must be payable by the borrower in a specific time frame and with an applied fixed rate of interest. When you borrow a loan then you have to pay an amount that will be greater than the amount that was originally taken because of the rate of interest. To calculate the total loan cost you need to multiply the monthly payments and the number of payments done.

4 Factors That Determine Your Loan Costs

Factors that can influence your loan costs are:

1. Credit Score:

When you apply for a loan, lenders will evaluate your credit score to realize if you can make the payments. They also determine the interest rates. If you have higher credit score lenders find it less risky to provide you with a loan.

2. Interest Rate:

When you take a loan lenders will apply interest on the balance you owe. The rate of interest can be expressed on its own or as an annual interest rate. It includes fees and interest.

3. Income and Debt:

For large loans such as mortgages, lenders will evaluate your income level and also check how much of your income goes to pay the debt each month.

4. Terms of the Loan:

The term of the loan depends on the lender and the type of the loan. Loan terms include the length of the loan, fees, and more.

8 Ways How You Can Reduce Your Total Loan Cost

We are describing a few ways how you can reduce your total loan cost:

1. Select the right lender:

Various lenders provide different interest rates and long terms. If you are looking for flexible loan payment options then you can go for online loan providers as well.

If you are looking for a loan of credit or home equity loan then you should try to search for traditional lenders such as banks or any nonbanking financial organization.

2. Understand the total cost of the loan:

If you are towards taking a loan then before signing the papers you must understand what will be the total cost of the loan.

You should calculate the total cost of borrowing; for this calculation, you need to consider several factors. The interest rates, fees, and any other charges applied to the cost of the loan. This will be helpful to you for comparing these factors side-by-side.

3. Search for a lower interest rate:

If you are paying off a federal loan you can look for income-based repayment options while to take a student loan you should search for a low-interest rate.

This technique will help you to reduce the monthly payments by 50 percent. If you are going to take a private loan then you can directly contact the lenders and asked them about the rate of interest. Many lenders are interested to help individuals by providing low-interest rates.

4. Choose a shorter term:

When deciding to take a loan remember that loans with shorter terms have higher interest rates. If you can repay for a longer period then you may go for lower interest rates.

If you afford larger payments then it will be suggested to go for paying off your loan early and choosing a shorter term.

5. Increase repayments with rising income:

Another simplest way to repay your loan faster is to raise the EMI with every rise in your income level. If there is any additional money flowing in, then priority must be given to increasing the repayments. If you have multiple loans at the same time, then additional repayments must be included with the costlier loan.

6. Switch from variable-rate to fixed-rate loans:

If you have decided to finance your vehicle or car then you have two types of options such as fixed-rate and variable-rate loans. If you go for fixed-rate loans then your interest rate will not fluctuate over time.

But with variable-rate loans, the interest rates will be changed over the market conditions. Variable rate loans may seem cheaper in good economic conditions but in bad economic conditions, they can be more expensive.

So, if you are thinking there may be an increase in the rate of interest then it would be better for you to go for a fixed-rate loan instead of a variable-rate loan.

7. Increase your credit score:

If you have a good credit score then you have various loan options which also help you to get better interest rates. So, before applying for a loan you must check your credit score to see your position in the market. If you are not in the position where you desire to be then you can improve your credit score by taking several steps.

8. Refinance your loan:

If your financial conditions raise or the interest rate starts to drop during the repayment term then it is time to look for refinancing your loan. You will get lower interest rates, a shorter term, and even lower monthly payments that can reduce your total cost of the loan over time.

How can I reduce my student loan debt?

There may be various factors that you want to reduce your student loan debt. Maybe your student loan negatively influences your mental health or you may be focusing on other financial goals. Here are some ways to help:

1. Start making payments when you are in school:

If you are not yet a graduate, you can start making payments during your in-school period. At least you can target to pay only the interest each month. In this way, you have a chance to reduce capitalization once you graduate.

2. Pay a little extra amount:

If you target to pay some extra money with the monthly installments then this will help to bring down total debt. And you will pay off your loan faster.

3. Enroll in Autopay:

It is likely the easiest way to reduce student loan debt. If you set up automatic payments for your student loan, many lenders will offer you a discount. They will discount the interest and it could lower the total repayment amount.

4. Pursue Student loan forgiveness:

Public service loan forgiveness is a loan forgiveness program for people who have a career in the public sector. Under this program, you need to repay 120 qualifying payments and if you are working in a public school, nonprofit organization, or government agency, then the remaining balance will be forgiven.

5. Ask for Employer assistance:

Some employers show their interest in helping their employees to pay off their student loans. So they incentivize it. The assistance from the employer comes in many ways and depends on the company’s strategies. 


Loans can indeed be helpful to make a large purchase but the cost of a loan gets more expensive. Before taking a loan it is important to understand all the terms and conditions of the loan so that you can repay it. If you can take the methods to reduce the cost of the loan, even better.

You should focus to keep yourself at the top of your credit so that anytime you can go for refinancing to reduce the debt of the loan. However, if you are still struggling to find a way of reducing the cost of a loan then you can consult with a financial advisor.