LOANS can cost you thousands of dollars in extra money in the long run – but a savvy trick could help you save some money.
According to a first-quarter 2021 report from the Federal Reserve Bank of New York, the average American had $52,940 worth of debt.
2
The expert shared a tip on how you can save a lot of money when making loan payments
2
For it to work, you’ll need to make sure you have a simple interest loan
That includes debt from mortgages, student loans, credit cards, auto loans, among other things.
If you happen to owe debt in the form of a mortgage or loans, personal finance expert Seth Godwin has a savvy trick that could save you a lot of money.
In a recent TikTok video, Seth recommends making two payments every month instead of one.
So, if your loan payment is $500, you’ll want to make two payments of $250 each month.
Specifically, Seth noted that you can make one payment 15 days before the due date while making the other three days before the date.
This exact schedule does not need to be followed, however, as long as you aren’t making one lump sum payment every month, he added.
In the description of his video, Seth noted that this trick can help you save thousands.
Why it works
A big reason why this works is because most mortgages and loans today are simple interest loans.
Simple interest loans are calculated on your balance on your payment date.
Most importantly, the borrower isn’t charged additional interest on top of what’s already due.
This is also known as interest not compounding.
“Interest occurs on a daily basis called a per diem,” Seth said.
“The less time that passes between each payment, the less interest accrues so more of your money goes towards the principal balance.”
While most loans are through simple interest – you’ll still want to confirm this.
You can do this simply by contacting your lender and asking if the existing loan is through simple interest.
Meanwhile, partial payments may not work at some banks.
“I just tried to set this up and my bank doesn’t accept partial payments, even though it is simple interest,” a comment on Seth’s video read.
For more on money management, an expert recently shared his best ways to use your tax refund and …….
Source: https://www.the-sun.com/money/4789759/loans-debt-simple-interest-save/