Our team at Tundra Finance are often tasked with comparing the loan options offered by a multitude of lenders and if there’s one thing that we’ve learnt in this time, its tips and tricks to reduce expenses. As different as lenders might be in terms of individual businesses, most (if not all) of them will share one thing in common; and that’s that they rely on factors like interest rates to offer them a return on their investment.
Whenever they lend you money they’ll need to make it worth their time; that’s why these rates are added on top of loans, regardless of their size. Most lenders use APR (Annual Percentage Rates) and if you consider this sum as an additional fee that you’ll need to cover when borrowing money, you’ll begin to understand the importance of keeping your repayments as low as possible.
How do repayments work?
Whenever you make a payment – be it weekly, fortnightly, or once a month, you will be paying back a small percentage of what you owe, with the addition of an interest rate. The quicker that you plan to repay your loan, the larger the amounts you’ll want to pay back each month – and this is what the interest is added on top of.
Imagine for a moment that you needed to pay back $10,000 over the course of a year:
These payments might be subjected to a fee of 5%, so you would need to pay back around $833 a month – or $874.50 with the 5% ($41.50) rate applied.
Now imagine that you planned to repay the debt over the course of two years instead:
In this instance, you will be expected to pay back half of the above, because of the fact that the repayment duration has been doubled. That’s around $416 a month, or roughly $436 with interest.
You might need to repay for a little longer, but just look at how minimal your expenses are now. Every month you’ll be able to literally halve what you’d be paying back in the space of a year – and over the course of the year, you’ll have accumulated no less than $5,200 in savings
You might end up repaying that amount the next year; but as your repayments will have been minimised, you’ll be free to spend your cash on other professional activities, making this method of business financing ideal for those hoping to reduce the cost of their repayments and spread them out over time.
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