Whenever you take out a loan you should always be prepared to uphold the commitment you have made by signing a loan agreement.
Your loan conduct is key to your future borrowing potential and is critical to protecting the integrity of your credit file. Your credit file is like your resume to any future lenders, demonstrating why they should lend you money.
Does It Fit Your Budget?
Make sure that you have not overcommitted yourself by ensuring repayments will fit within your personal budget. There are many free online budget calculators you can use to access and break down all the general life expenses that you may otherwise forget.
Payments Via Direct Debit
A direct debit setup with the loan provider is a very convenient way of making your repayments. Just ensure that you have sufficient funds in your account when those direct debit amounts are due, as your nominated financial institution may charge direct debit dishonour fees if there are insufficient funds at the time of debit.
If the lender allows your employer to make your repayments prior to you getting paid, this can be a convenient option. If you never have the money, you won’t miss it and your loan will be paid on time, every time.
Make Additional Repayments
Any additional funds that you can afford to put towards your loans will reduce the amount of time you will have your loan for and could save you interest.
It is nice to have some additional cash aside in case for a rainy day, but if you have surplus funds consider paying down some of your loans. If you keep your cash in the bank, you will earn interest, but you will also pay income tax on that interest earned, unless it is in an offset account against your home loan.
It is best to pay off any kind of credit in the following order:-
1. Credit cards with the highest interest rates first, then pay down lower rate credit cards.
2. Non-deductible loans with the highest interest rates (usually personal loans or car loans).
3. Non-deductible loans with lower interest rates without break costs (usually variable rate home loans).
4. Non-deductible loans with lower interest rates with break costs (usually fixed rate home loans).
5. Any tax deductible debt last, from the highest interest rates down (if your goal is to pay down all debt).
Set Up Reminders When Your Payments Are Due
Unlike normal bills you may receive in the mail, you may not receive a reminder from your lender when your payments are due. Set up a regular reminder on your computer or phone to ensure that you have your funds available when required.
Set Up Your Direct Debits To Fall Within Your Pay Cycle
If you get paid weekly or fortnightly, then if at all possible, set up your loan repayments weekly or fortnightly and request that you have the debit come out the following day after you are paid. The quicker this is out of your account, the less temptation you have to spend it.
Cale Sammons is a bad credit and finance expert at carloans.com.au in Sydney, Australia. He has completed his Diploma in Financial Services and has held multiple lender and insurance accreditations across the mortgage and automotive finance industry. He is currently a member of the Finance Brokers Association of Australia (FBAA) and a previous member of the Mortgage & Finance Association of Australia (MFAA).