Durham Finance

Loans and lending advice.

Is it Worth Overpaying your Loans?

Many of us have loans which we have used to pay for all sorts of things. However, there are some people that will encourage others to overpay loans, but we might ask ourselves – is it really worth it?

  • Usually saves money – most loans will be costing us a significant amount of money and if we overpay them so that we can repay then early then we will be saving money. This is not always the case though and so it is worth investigating to see whether it is worth you doing this. Some lenders will charge you for overpaying your loan. This could just be a small admin charge or it might be a significant amount of money. It is worth finding this out before you make any overpayment plans. Your lender will be able to give you this information and it can be quicker to ask them rather than trying to search through the terms of your loan to find out. If the charge is not very high then it is likely that you will save money if you overpay because you will repay the loan more quickly and therefore save money in interest. You will be wise to do some calculations though to see how much you will save and see whether it is worth it.

You may feel that overpaying will be difficult for you. That it will be too expensive, but even if you can just overpay a very small amount you will be charged less interest. With less interest to pay you can afford to overpay a bit more next month and so on, so your overpayments get higher and your interest charges get lower. Therefore, it can be well worth thinking of ways that you can overpay, even if it is just a small amount. It could be that you have some savings and you can pay in a lump sum, that will be great as you will take away a chunk of debt and your interest will go down and you will be able to afford to overpay a bit each month as if you make your normal monthly payment it will be more than you need to pay as the interest charged will be less.

  • Improves credit record – if you pay your loans off quickly then this will look good on your credit record. It will show that not only are you responsible when it comes to money but you can be trusted to repay loans. Of course, there is no knowing for sure what lenders are looking for when they do a credit check and some might prefer customers who do not repay early so that they can get more money out of them, but most will surely be happy that you have a good record for repayment and will therefore be happy to lend to you.
  • May reduce stress – some people do find being in debt stressful. Some just do not like the idea of owing money and others have concerns about making sure they have enough money to cover each repayment. It can be a worry at times knowing that you have to find that money each month. Also, with some bad credit loans or credit cards, you do not have to repay much each month and the loan could hang around for a long time. This can be difficult and so paying off more than required can help the debt to disappear more quickly and the worry to also disappear.
  • Improves prospects for future borrowing – if you decide you want to take on a big loan in the future, such as a mortgage, then your past history of borrowing will be scrutinised. You will also find that you will need to demonstrate that you have the budget to cover the repayments. If you have eliminated other loans then you will have fewer financial commitments and therefore will be more likely to be accepted for the loan.

It is therefore worth weighing things up. If you can save money then repaying a loan early is a sensible option if it is something that you can afford to do. It may also have other advantages such as improving your credit record, reducing your stress and making it easier for you to borrow in the future. However, you may find that you are charged for repaying your loan early and you will need to calculate whether you think that it is worth it or not. You may feel the advantages outweigh the increased cost anyway but this will depend on your own feeling towards the loan and whether your credit record and future borrowing are important to you. It is good to give it some serious thought though as it could make a big difference to you and your finances.

How to Afford to Send Your Children to University

University is somewhere that many young people aspire to go to. The numbers attending are on the rise and across all income brackets. Although there is some help available, it may also be down to parents to help out. It is therefore worth thinking hard about how you can help out.

  • Ensure the student gets all money they are entitled to – it is really important to make sure that you are getting all the money that you are entitled to get. Students can get loans which will cover their fees and might also cover their living expenses depending on the level of income in the household that they live. All students are entitled to a loan to cover their course fees but a more affluent income will get less loan or even no loan at all to cover living expenses so it will be these households that will be needing to find more money. The full loan is not a huge amount though and so parents may need to top this up anyway. There are some grants available for the lowest income families and so it can be worth checking if they are entitled to those.

You may also find that specific universities have money available for some students on certain courses. This might be more of a lottery as it will depend on those specific courses and it may have to applied for and there may be limited funds to only be allocated to very few students. It is best not to rely on this sort of thing but to take advantage of it if it becomes an option.

  • Do extra work – it might be the case that parents will have to do extra work so that they can support their children. If one parent has been at home or working part-time while their children were at school then they may have to look at working full-time so that they can help out financially. Of course, if there are younger children at home then it may not be possible for everyone to work full-time. There may be opportunities to earn money online though doing part-time work or perhaps there might be the possibility of doing some freelance work or contract work to fit around family commitments.
  • Give them the money you would otherwise have paid for them – when we have children living at home we are paying out for their food and possibly also toiletries and other things for them as well. When they move out, we will save that money and so it could be fairly easy to give them that money. Therefore, you might be able to supply them with enough to buy food and a few other things which could be a really good help. You may even be able to rent out their bedroom and send them that money to cover their rent.
  • Get them to work – another option is to get the child to work part-time while they are doing their studies. It is often possible for students to pick up a part-time job, perhaps working weekends and/or evenings so that they can get some extra money. How much they can cope with will depend on how difficult the course is that they are studying and some will be very much more taxing than others. It could even be wise for them to start work while they are at school so they can start to build up some savings or for them to take a year or two out after they finish school to work full-time and build up some savings before they go to university. This may also give them time to carefully consider which course will be right for them and may reduce the risk of them doing a course that they later decide is not right for them.
  • Make the student stay at home – if you are lucky enough to have a local university then it will be a lot cheaper if you let your child stay at home when they are studying. This will save the expense of rent and utilities as you will cover those costs. You may be happy for them to stay and not contribute anything at all and they will then only have to borrow the money to cover the cost of their course fees. Some people feel that university is about moving away form home and experiencing life without being under parental guidance. However, if it is the qualification that is the important bit for you, then it should make sense that you will be better off staying at home. It is a lot of money to pay just for an experience, which you could get once you finish university, find a job and are therefore able to afford the rent without borrowing money to do so. Obviously, parents will still be paying out some money in the scenario but it will be about the same as they were paying out when the child was at school which was hopefully within their means.
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