How Can You Reduce Your Total Loan Cost?

Article Summary:

When you have high levels of debt, it can be difficult to make ends meet each month. You may find yourself struggling to pay your bills, which can lead to a cycle of debt that is difficult to break free from. The good news is there are strategies that can help you manage loan payments and reduce your total cost.

Paying down your loan debts is one of the most important things you can do for your financial future. Not only does it reduce the amount of money you owe, but it also frees up more money each month to save and invest. This will then help you build a solid financial foundation that will support you through retirement.

The strategies we discuss in this article apply to most loan types, including auto loans, personal loans, and mortgages. However, we will focus on student loans when illustrating how these methods work. If you’ve been struggling to make regular loan payments, it might be time to change the way you’re managing these costs.

How can I reduce my student loan debt?

Student loans can be a huge financial burden, especially if they aren’t managed properly. The interest rates on student loans, especially private student loans, are often high. And if you do not make student loan payments on time, you will incur hefty interests in the long run. So it’s important to reduce your student loan costs as soon as you can.

Take advantage of entrance counseling

Entrance counseling is a process where you meet with a counselor either online or in-person to help you understand your student loan options and answer any questions you have about borrowing money for school.

Most importantly, it makes sure you understand the terms and conditions of your loan, as well as your rights and responsibilities. This can prevent you from overborrowing naively and accruing unnecessary debt. So be sure to pay attention during those counseling sessions and take notes. The knowledge will come in handy once it’s time to start paying off your loans.

Repay the loans while still in school

Many people are under the assumption that you can’t start paying back your student loans until after graduation, but this is not true. In most cases, your student loan payment is first used to pay down any accrued interest and fees and then to your principal balance. So the sooner you start making payments, the less interest will accumulate on your unsubsidized loan, which will lower your total student loan cost.

Make more than the minimum payments

To reduce the amount of money you pay on your student loans, it’s important to make more than the minimum payments. Making extra payments will help you pay off your loan faster and save you money on interest charges. You can do this either by making a lump sum payment or adding an extra amount to your monthly payments.

Use Auto Pay to save on interest

Auto-Pay is a great way to save money on interest rates and reduce your student loan cost. When you choose this payment method, your lender will automatically deduct the required monthly payment from your bank account on the agreed-upon date. This prevents you from forgetting to make a payment or paying late, which can result in added fees.

Plus, many lenders offer a reduced interest rate for borrowers who sign up for Auto-Pay. For example, you can receive an interest rate reduction of 0.25% on your federal Direct loan. Speak with your student loan servicer to learn about any additional discounts that may be available to you.

Find the right student loan for you

There are a lot of different lenders out there, and each one has its own set of products and terms. So take the time to compare them and find the best student loan option for you.

Also, don’t wait until the last minute. Start looking for a suitable loan before applying to college. This way, you have plenty of time to shop around and compare rates.

Pro Tip

The U.S. Department of Education’s payment calculator can help you estimate the amount in monthly payments you’d have to make based on the loans you’ve taken out. This allows you to better allocate your budget upon graduation.

What is student loan forgiveness?

Student loan forgiveness is a type of debt relief that can be granted to students so that they no longer need to repay the entire or a portion of the student loans they owe. There are a variety of reasons why someone could qualify for loan forgiveness, one of them being the type of job they have.

For example, if you are currently employed by a U.S. federal, state, local, or tribal government or not-for-profit organization, you could potentially be eligible for the Public Service Loan Forgiveness Program (PSLF). If you do qualify, you could have the remainder of your loan forgiven after making 120 monthly payments while working full-time for a qualifying employer.

How to reduce other loan costs

By reducing the amount of debt you owe, you can focus fully on saving and other financial goals. Here are some tips to help you reduce various loan costs.

Improve your credit score

Increasing your credit score is one of the best ways to save money on all of your loans. A great credit score tells private lenders you have a history of timely payments, making you more reliable and less of a risk for them.

A high credit score also helps you earn more favorable interest rates. This means smaller monthly payments and more savings overall. You can learn more about improving your credit score here.

Consider refinancing at a lower rate

If you’re unhappy with your current loan terms, refinancing your loan may be the best option. An increased credit score can make these terms a lot better for you, meaning better rates and smaller monthly payments.

Fortunately, you can refinance personal loans, student loans, and mortgages. For more information on refinancing and what your options are for each loan, read SuperMoney’s ultimate guide to refinancing.

Consolidate multiple debts in one payment plan

When you consolidate your debts, you take out a new loan to pay off your old ones. It’s also a great way to get rid of multiple payments each month and to have one payment that is more manageable.

For example, you can apply for a debt consolidation loan to pay off your credit card debt, then repay the loan monthly with an interest rate much lower than credit cards.

Make more frequent payments

We know it’s easier said than done. However, it may be more possible than you think. Even making biweekly payments instead of monthly ones will shave years off of your loan, which will also help you pay less total interest.

This can be done by setting aside a little bit of money each month for multiple small payments or making larger payments during your loan’s repayment period.

Extend your loan’s terms

Extending your loan may not be the best long-term option, but it will help you make smaller monthly payments. However, if you extend the terms of your loan, you may end up paying more interest in the long run.

While this shouldn’t be anyone’s first choice, smaller payments may raise your credit score to the point where refinancing is possible.

Compare the terms and rates of multiple lenders

One of the easiest and most underused ways to lower the overall cost of a loan is to compare multiple lenders when choosing a loan. The comparison tools below will allow you to shop for the best rates and terms available to you without hurting your credit.

Personal loans

Personal loans are usually based entirely on your credit since they are unsecured loans. So, improving your credit score is one of the best ways to tackle a personal loan. However, what many people don’t know is that the personal loan rates you can get will vary significantly from one lender to another. One study that analyzed 160,000 loan offers to over 15,000 borrowers who applied for a loan via SuperMoney’s loan offer engine found that the average difference between the highest and lowest APR offer (for the same borrower and loan term) was 7.1 percentage points.


The difference in rates offered by mortgage lenders may be smaller than for unsecured loans, such as personal loans, but the loan amounts are also much larger.  A study by FreddieMac showed that simply making one phone call (or online search) to get an extra quote on a home loan could save you $1,500, on average. If you compared five lenders, the savings increased to $3,000.

Auto loans

A survey by the Federal Reserve reported that 76% of car buyers negotiated the purchase price with the seller, but only 32% negotiated the interest rate on their loan. It gets worse. 27% of car buyers considered the monthly payment on their auto loan as the most important factor, but only 6% considered the interest rate on the loan as the most important factor. These are expensive mistakes to make when financing a car.

Key Takeaways

  • Reducing your loan cost can free up money each month to help you save and invest.
  • Take advantage of entrance counseling so you won’t borrow excessively without understanding the terms and conditions of your student loan.
  • Repay your student loan debt while in school to avoid accruing interest on your unsubsidized loans.
  • Make more than the minimum payment and opt for Auto-Pay to save on interest charges.
  • If you are unable to make regular payments on your personal private loans, you may be able to renegotiate them with the help of loan modification.
  • If you have high-interest debt like credit cards, it could make sense for you to apply for a debt consolidation loan.
  • Improve your credit score so that you qualify for loans with the lowest interest rate possible.
  • You can save a lot of money by comparing the rates and terms of multiple lenders.
View Article Sources
    1. Unsubsidized Loans — Consumer Financial Protection Bureau
    2. Loan Simulator — Federal Student Aid
    3. Mortgage Refinancing —
    4. A Complete Guide to Debt Consolidation — SuperMoney
    5. Expert Guide to Refinancing Your Loans — SuperMoney
    6. How and When to Refinance a Personal Loan — SuperMoney
    7. Best Personal Loans | March 2022 — SuperMoney
    8. Personal Loans: Reviews & Comparisons — SuperMoney
    9. 2021 Personal Loans Industry Study — SuperMoney