How to Fit a Personal Loan Repayment into Your Monthly Budget

There are many reasons for taking out a personal loan, whether you’re looking to consolidate credit card balances, refinance student loans, or make a large purchase. Personal loans are installment loans, meaning that you’ll receive your money in one lump sum, which you’ll then repay monthly over a specific period of time.

Finding and getting approved for the right personal loan is only one step of the process, though. You’ll also need to make sure that the loan you choose fits your household budget and that you can manage those payments for the years to come.

Here’s a look at how to fit your personal loan repayment into your budget, and what to consider along the way.

What can you currently afford?

Before you can begin to find the perfect personal loan for your needs and budget, it’s important to identify that budget in the first place.

Take a look at your current cash flow and available funds. How much of a monthly payment can you afford to add without it being detrimental to your finances? And whatever that number is, can you afford it for the duration of your new loan’s repayment term?

If you’re using a personal loan to consolidate or refinance other debts, you can include those monthly minimum payments in your calculations, too. So, if you have $200 in extra cash each month, and currently pay $450 toward the credit cards you’re consolidating, you could potentially take on a $650 personal loan payment. 

Consider your loan repayment options

The longer you take to repay your personal loan, the lower your monthly payment will be. While this can mean paying more in the long run, choosing a longer repayment term could make it easier for you to take out the loan you need without jeopardizing your budget.

Paying back a $30,000 loan over 24 months will require a notably higher monthly payment, versus spreading that debt out over 72 months. Spend some time figuring out how long you need to repay your personal loan, and what that means for your overall cost. 

Your interest rate matters… a lot

The cost of taking out a personal loan is expressed as its annual percentage rate, or APR. The lower your APR, the less you’ll pay over the course of your loan repayment. 

Your APR will also affect your monthly payment, though. So, in order to get the lowest monthly payment for your loan amount and repayment term, you’ll need to lock in the lowest possible interest rate you can find.

For example: let’s say you’re taking out a $20,000 personal loan to consolidate and repay some credit card debt. You would prefer a 60-month repayment term, so you can be out of debt in time to buy a house in five years. Here’s what your monthly payment would look like, depending on the interest rate you’re offered:

• $20,000 loan for 60 months at 6.25% APR: $388.99 monthly payment

• $20,000 loan for 60 months at 8.6% APR: $411.30 monthly payment

• $20,000 loan for 60 months at 11.3% APR: $437.85 monthly payment

The best interest rates are usually reserved for borrowers with good credit, a healthy debt-to-income ratio (DTI), and those who opt for the shortest repayment terms. Shopping around with multiple lenders — especially through a platform like Fiona, where they’re all in one place — can help you find the lowest possible APR without too much hassle.

Find ways to lock in better personal loan terms

You’ve done the math, you’ve rearranged your budget, and you’ve shopped your options through multiple personal loan lenders. You have an idea of what the best loan offer is, but is there any way to make your terms just a little bit better?

Well, maybe.

Some possibilities for optimizing your personal loan terms include:

• Adding a creditworthy cosigner to the loan (especially if your credit history is limited or you have a lower credit score)

• Opting for a shorter repayment term (if your budget allows)

• Reducing your debt-to-income ratio 

• Asking if your lender offers rate discounts for things like automatic payment enrollment

Make adjustments to your budget, if necessary

You’ll probably be paying off your new personal loan for a couple of years. It’s imperative that you maintain a healthy monthly budget after adding this new monthly payment, so you don’t find yourself struggling to keep up.

In some cases, you may also want to make some changes to your household budget in the beginning. This allows you to fit your personal loan repayment into your budget and even work in some more wiggle room. 

Depending on your situation, you might be able to eliminate some unnecessary expenses, trim down your regular spending, or even take on a side hustle to boost your income. Some (or all) of these could make your personal loan monthly payment fit into your budget just a little easier.

A personal loan can be a great way to cover large expenses, refinance existing debt, or even consolidate other debts to pay them off easier and for less interest. Since personal loans are installment products, you’ll have a regular monthly payment to consider for the duration of your chosen loan term. Using the steps above, you can better ensure that this payment fits into your budget without causing any financial hardship along the way.