4 Ways You Pay Too Much–and What to Do About It

By seizing on promotions and not paying attention to new products and changing markets, consumers end up in the wrong loans all the time. They spend an estimated $541 a month more than necessary on their debt repayment. Here's how to fix that.

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Am I paying too much? It’s a question most consumers ask daily as they whip out their wallet to buy something at the store. Why then don’t they ask the same question monthly as they whip out their pen to pay the interest on their loans?

The answer: Most believe they got the best rate possible at the time of the loan, and that may in fact be the case. What they don’t realize, though, is that over a period of months or years a lot can change to drive down borrowing costs—and not just with mortgages. So they keep writing the same old checks.

Two in three consumers are paying more interest than they need and one in three is paying significantly more—in effect flushing away an average of $541 a month, according to Credit Sesame, an online consumer debt management tool. That comes to $6,492 of excessive payments each year on their mortgage, auto loan, personal loans and credit cards.

People with a mortgage generally pay attention to rates, and look to refinance when possible. Yet mortgages still account for the biggest part of household debt overpayment, Credit Sesame reports. Certainly, refinancing has been problematic since the housing collapse. Homeowners may not have the equity needed to take advantage of lower rates. But many simply assume the mortgage market is frozen. It’s not—and with real estate finally recovering mortgage holders should take another look.

Consumers are paying too much on other common loans too, says Adrian Nazari, CEO of Credit Sesame. “The biggest thing they have to understand is that their situation changes and the market changes,” he says. Perhaps they have built a better credit score. Sometimes a new zip code or older age qualifies for a lower rate. When market rates decline it’s usually clear. But market innovations aren’t so obvious. New products like peer-to-peer lending have driven down borrowing costs for millions of people.

The most common ways consumers end up paying too much:

  • Credit cards It’s easy to end up in the wrong card by seizing on credit card promotions and not paying attention to potential penalties and the duration of teaser rates.
  • Mortgages Most homebuyers focus on the interest rate or size of the monthly payment. But there are all kinds of broker and origination fees and charges that boost the effective rate—the APR. And a low monthly payment can cost more in the long run.
  • Auto loans The typical car buyer looking for a loan focuses on what she can afford each month—not what rate she is paying. This can lead to higher rates that stretch over longer terms and cost big money over the life of a loan.
  • Personal loans These can be difficult to obtain so borrowers often accept any rate. This is one area where a peer-to-peer lending site like Prosper.com or (for a business startup) kickstarter.com can cut your interest expense.

There are many considerations when looking for the right set of loans for your life—the interest rate, fees, length of the loan, how long you’ll be in the house or use the car, teaser rates, caps, rewards points, impact on credit score, to name a few. It can be complicated.

But for $541 a month, it’s worth sorting out.