Good Afternoon, Smart Moms!

Applying for loans can be confusing and incredibly frustrating. Even after going through all the hoops and paperwork, so many people are still denied! Yikes! I was personally denied by 3 banks before finally receiving financing for my first car. Loans are necessary for those of us who aren’t multi-millionaires–we can’t just pay cash for everything!

Knowing the right kind of loan to apply for is the first step. There are personal loans, college, car, home, payday, credit cards, and credit consolidation loans.

While each loan has a different process, there are similar guidelines for all of them.

• Pick the right place. From banks, to credit unions, to dealerships, there are so many options for where to apply. Make sure you research the credibility of each place, other customer’s experiences, interest rates, etc. There are so many factors to consider! I went to 4 banks and 3 credit unions before deciding on the one I wanted. I also evaluated the hospitality of each company to see how helpful the employees might be should I need help.

• Bring at least 2 valid forms of I.D.

• Bring paystubs/bank statements—any place that lends money wants some certainty that they will get their money back. So they will ask for proof of income. They want to be sure you take home enough money each month to make the allotted payments, plus your other bills. 

• Have good credit. I discussed how to raise your credit score in a previous blog post, which you’ve read. Of course. Thus, you already have the tools to make your credit score awesome. Which will only help! The better your score is, the more likely you are to be approved. AND, it will help lower your APR.

For any large purchase or life event…BE PREPARED! Always do your research. Especially before making life changing decisions.

Yes, I am quoting the Lion King because even at a young age, (well, younger,) I knew that was important.

Alright, so you were approved for the loan. Good for you! But you certainly don’t want to make eternal payments on it, right? Interest rates can rob you blind.

So, I have two words for you:

Amortization report. (1)

What is that, you may ask?

Well, it’s a magic weapon for combating loans!

I took a finance class and we spent quite some time going over amortization, and it is the most ingenious tool for cutting your loan payments and paying as little interest as possible!

I learned that, by the time I was scheduled to pay off my house (when I eventually bought one and applied this report), I would be paying almost as much in interest as I would on the house itself!

And that’s with a low interest rate!

My first loan was for school. Then I got a credit card, a car, and eventually a house. All of these loans came with interest and, unfortunately, some of those loans came with a very high interest rate.

I thought I would be buried indefinitely by my debt. But then I adopted a system for getting ahead of my credit card debt, utilized my amortization report, and simultaneously raised my credit.

On any loan or outstanding balance that collects interest, you can go online and fill out an amortization schedule. It’s report that calculates how much of the monthly payment goes towards the principal loan, and how much goes towards interest.

The first half of monthly payments on any loan is majorily going towards interest, and a very small amount pays the actual loan amount.

For example, if you bought a house for $300,000 at 5.25% interest for 30 years, your payments would be $1,657. Now, you’ll pay that same amount every month. But for the first few years, that payment will be split into roughly $1300 on interest, and only $356 on the actual principal amount. By the end of the loan term, you’ll end up paying an additional $296,380 in interest alone.

That’s almost the exact amount of your loan!

The benefit of the amortization report is that it splits the payment visibly between the amount paid on the principal, and then on interest. It really simplifies the numbers for you to see how much extra money you’ll need to chip away at that principal amount. Not just the interest, which can really add up!

I began making 2 payments a month on my car loan. On the second payment, I made the full monthly amount, and sent a note that I wanted to apply it directly to the principal loan amount (additionally to my original monthly payment,) and it literally cut my loan time in half.

Did you read that? In half!

Because I paid the original monthly payment, that paid on the front end of the loan (interest). Then paying the same amount again, that went entirely towards the back end of the loan (principal.) Imagine having a loaf of bread. You start slicing pieces off either end (at the same time, for the same amount) until you reach the middle. Eventually there will be nothing left!

That is the absolute best, most effective way to quickly pay off loans. But don’t do that if it’s not in your budget!

If you can’t afford 2 monthly payments, your next best option is to take any money left over from your budget, if you have any, and put whatever you can towards your loan. Even if that is only $5 dollars.

Any extra amount of money you can pay will help!

Loans can be scary, but they don’t have to run your life.

Take charge. Put your money towards your loan…don’t let your money slip away on little wants and desires here and there. Put it where it counts.

Little by little you can do it.

1. http://www.amortization-calc.com/