How can you reduce your total loan cost

How Can You Reduce Your Total Loan Cost

About 56% of Americans do not have enough savings to cover an unexpected $1,000 bill.1 But thankfully, borrowing money is an option. For example, installment loans can provide much-needed financial relief for unexpected expenses. 

However, loans can cost a pretty penny. So, you may ask, “How can I reduce my total loan cost?” Keep reading to learn the different steps you can take to save money by reducing loan costs! 

Why Are Loans So Expensive?

A lot of factors can affect the total cost of a loan, such as: 

FactorDescriptionExample Impact
Interest RateThe percentage of the loan amount that is charged as interest. Higher rates mean more cost.A 15% interest rate will cost more than a 5% rate.
Repayment LengthThe duration over which you have to repay the loan. Longer terms can mean more interest paid.A 30-year mortgage will accrue more interest than a 15-year mortgage.
Loan AmountThe total sum borrowed. Larger loans mean more to repay, including interest.A $50,000 loan will cost more in interest than a $10,000 loan.
Fees and ChargesAdditional costs like origination fees, late fees, and prepayment penalties.A 3% origination fee on a $20,000 loan adds an extra $600.
Type of InterestFixed vs. Variable. Variable rates can increase over time, making the loan more expensive.A variable rate that rises from 4% to 8% can significantly increase cost.
Credit ScoreYour creditworthiness can affect the interest rate you’re offered. Lower scores often mean higher rates.A credit score of 600 may result in a higher interest rate compared to a score of 750.

How To Reduce the Cost of Installment Loans

Installment loans are loans that borrowers pay off through monthly payments. If you want to reduce your total loan cost and save money, try one of the following tips!

Repay the Loan Early 

Reduce the total cost of an installment loan by repaying the loan early! Early payment means less interest and more money in your bank account. However, verifying that your financial institution does not charge prepayment penalties is essential. 

Switch to a Fixed Interest Rate 

Loans have either a fixed or variable interest rate. Fixed-rate loans generally have a predictable payment schedule, while the monthly payment amount for variable-rate loans changes frequently. 

Refinance the Loan

Refinancing a loan is when a borrower replaces their current loan agreement with a new one to get better loan terms. Refinancing can reduce the overall cost of the loan because you could get lower interest rates and fewer fees. The refinancing process is similar to applying for a new loan. 

How To Reduce the Cost of Credit Cards?

Millions of Americans use credit cards, so it’s perfectly normal to have credit card debt. Unfortunately, the interest rates that credit card companies offer can add up to a significant amount. But you can take steps to reduce the amount you pay in interest fees!

Pay More Than the Minimum

A minimum payment is the smallest amount you can pay monthly on your credit card bill. Minimum payments are convenient, but borrowers will accumulate more interest fees. Paying more than the minimum ensures you pay down the principal balance and save money!

Avoid Carrying a Balance 

Carrying a balance month to month will result in interest fees being added to your overall balance. Credit cards make money by charging interest on borrowed funds. But you do not have to pay interest if you pay your balance in full every month! 

To avoid accumulating too much credit card debt, you can follow these tips:

  • Avoid making large purchases that cannot be paid off immediately.
  • Avoid continued use of your credit card if you already have a balance.
  • Follow the debt snowball or avalanche repayment method. 

How To Reduce the Cost of Your Student Loan Balance

Almost every student pursuing higher education uses student loans, and many have a mix of private and federal student loans. Student loans cover various qualified educational expenses like tuition, room and board, books, supplies, etc. Student loan payments can be pretty high, but there are multiple ways to reduce your monthly payment amount and total loan cost. 

Refinance Private Student Loans

Refinancing a loan means replacing an existing loan agreement with another to obtain more favorable terms. Unfortunately, the interest rates for private loans depend on credit scores. Low scores indicate credit risk, so many financial institutions will charge higher interest payments. But if your credit score has increased since you obtained the loan, you may qualify for a lower rate! Student loan borrowers can refinance with their existing lender or work with a new one. 

Get an Income-Based Repayment Plan for Federal Student Loans

Federal student loans offer various income-based repayment plans. Suppose your income changes, and you can no longer afford your monthly payments. In that case, you can reduce the cost by applying for a different plan. 

These are the income-based repayment plans available2:

  • Saving on a Valuable Education (SAVE) Plan—formerly the REPAYE Plan
  • Pay As You Earn (PAYE) Repayment Plan
  • Income-Based Repayment (IBR) Plan
  • Income-Contingent Repayment (ICR) Plan

Ways to Increase Your Credit Score Quickly 

Increasing your credit score can reduce the total cost of a loan. Here are a few ways you can start to improve your credit score today:

Make Timely Payments

Your payment history counts for 35% of a FICO score. A long history of timely payments on online loans and credit cards can help you secure low rates and better loan terms. And remember that other bills can also affect your credit. For example, financing a phone could help you build credit. Consider signing up for automatic payments or mobile alerts. 

Pay Down Existing Debt

Minimizing the amount of debt you have will improve your credit score and debt-to-income ratio (DTI). Your debt affects your FICO score by 30%, so try to pay down your personal debt. Lenders often offer excellent interest rates and repayment terms to borrowers with a manageable amount of debt. 

Dispute Credit Report Errors 

Borrowers must check their credit reports at least once a year. Errors are common, and your credit score may decrease due to a mistaken balance or payment date. Consumers are entitled to one free annual credit report from the three major consumer reporting companies. To get your free reports, visit the Annual Credit Report website. 

FAQs About Reducing Loan Balance 

Can I negotiate the interest rate on my student loan debt?

While student government loans come with fixed interest rates, some private lenders may be open to negotiation. Suppose you’ve improved your credit score or have a co signer with excellent credit. In that case, you might be able to secure a lower interest rate on your student loan debt.

What happens if I only make the minimum payment on my federal loans?

Making only the minimum payment on your student loans will extend the life of the loan and increase the amount you pay in interest over time. While it keeps you in good standing, it’s not the most cost-effective strategy for paying off student loan debt.

Can I refinance federal student loans with a private lender?

You can refinance federal student loans with a private lender, but be cautious. Refinancing federal loans with a private lender means losing federal benefits like income-driven repayment plans and loan forgiveness options. Make sure to weigh the pros and cons before making a decision.

How does paying student loan interest while still in school affect my loan cost?

Paying student loan interest while you’re still in school can significantly reduce the total cost of your loan. This prevents the interest from capitalizing and being added to your principal amount, which is what you’ll be charged interest on once you start repayment.

Can consolidating my loans help in reducing the overall loan cost?

Consolidating multiple federal loans into a single loan can make managing your student loan payments easier. Still, it may or may not reduce your interest rate. The new interest rate would be a weighted average of the rates on the loans being consolidated, rounded up to the nearest one-eighth percent.

Tips From CreditNinja on Reducing Your Total Loan Costs

Loans are expensive, but you can reduce your total loan cost by carefully comparing your options and improving your finances. CreditNinja offers quick cash loans with competitive rates and flexible repayment terms. Inquire online today to see if you qualify to borrow money! 



  1. 56% of Americans can’t cover a $1,000 emergency expense with savings │ CNBC
  2. Federal Student Loan Repayment Plan │ Federal Student Aid
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