We know what you’re thinking; the sooner I can pay my loan off, the better, right? There is no question managing debt is probably up there just behind an early morning root canal for things you’d rather not be doing today. However, credit is a part of life for virtually everyone, especially here in Australia, where we have the unenviable distinction of having one of the highest rates of household debt in the world.

If utilised and managed effectively, most debt has the potential to make a positive impact. It helps people afford items that improve their quality of life and can give them access to essential services such as education, healthcare and others. Debt can also be used productively to improve an individual’s financial circumstances; such as loans to start or expand a small business, to purchase or repair a vehicle used to commute to a job, or for a computer or phone required for work purposes.

Which brings us back to our initial point: as a responsible borrower, it would seem logical that paying off your loan faster would undoubtedly be a good thing. The financial obligation is off your back sooner, and you’ll save money by paying lower fees. The reality is that this doesn’t necessarily translate to a better deal for the borrower in all cases.

Too Much of a Good Thing

When considering the optimal term for your loan, it crucial to find the sweet spot between your desire to clear the debt as fast as possible and your capacity to pay. Paying down your loan faster means higher monthly repayments, even if the total lifetime repayment amount is slightly lower. Let’s see how that works out in practice:

The typical Speckle customer has a monthly income of $3375/month and borrows $1100. The table below shows how the repayment requirements differ depending on the term: 

 

3-Months

6-Months

9-Months

12-Months

Loan Amount

$1100

$1100

$1100

$1100

Total Repayment Amount

$1270.92

$1342.00

$1402.92

$1474.00

Monthly Repayment Amount

$425.33

$223.67

$156.44

$122.83

This gives you a pretty clear picture of how significantly the term can affect your monthly finances. Paying off your Speckle loan off in 3-months, rather than 12 will save you slightly more than $200, but will increase your repayments by over $300 per month. The question every potential customer needs to ask themselves is this: While it would be wonderful to be rid of my debt quicker, can I really afford it? Once you’ve taken rent, car repayments, petrol, phone, food and the multitude of other expenses out of that monthly salary, there’s a good chance many would find themselves struggling to scrape together the $425.33 required to meet their obligations. Even if you feel that you can just about squeeze it, what if unexpected expenses arise during the repayment term? An accident, illness, car breakdown or other unfortunate occurrences can throw the best-laid plan into disarray.

Conversely, somewhere between $122-$223 may well fit far more neatly into many household budgets and leave room to cope with the unexpected, should it arise. In these situations, you may very well be better off paying a little more in the long run to have the peace of mind that comes with knowing that you can comfortably make your repayments without placing yourself under undue stress and hardship.

Knockin’ Back a Few

Part of our job as a responsible lender is to make sure that our customers don’t get themselves into financial difficulty. This requires a bit of a conservative approach when evaluating applications, some of which will not be approved. Have you applied for a Speckle loan and been unsuccessful? If so, it may be that you simply chose too short a term, meaning that your monthly fortnightly or weekly repayments were considered too high relative to your income. If that sounds like it might be the case, we encourage you to try our handy loan calculator and reapply. You might find that an extended repayment period will work better for you, which will give you access to the funds you need for that car repair, new furniture, medical or utility bills or other expenses.

If this is your first time considering a Speckle loan, it’s worthwhile thinking very carefully about how much you can really afford to pay each month, taking into account your income and expenses. You might find that paying it off over a more protracted period might not only increase your chances of being approved but will spare you potential pain down the track.

Whatever your needs, we’re here to help. Call us today, and one of our friendly staff can walk you through the process and get you on track to financial security with a safe, fast cash loan that will usually be in your account within 2 business days. We hope to hear from you soon and help you achieve your financial goals.