5 Things To Understand When You Are Repaying Your Personal Loan Early

by James Smith MARKETING INFLUENCER

Loan repayment is an integral part of the loan process. For personal loan also there will be some term within which loans should be repaid. You will get to know about the repayment term and conditions once you are all set to apply for these loans. There could be innumerable purposes that can be covered with the help of these loans. You may find it profitable to pay off loans before time. But you should be aware of the pros and cons that follows. Although it could help you save money but it is highly advisable for you to research well about loan’s prepayment penalties. It is because these fees can increase the overall cost for paying off these loans ahead of schedule. Moreover, it is also important for you to make sure if your other financial responsibilities can be taken care off while you pay off these loans early.

Here is a checklist of the things that you must refer before getting ready to repay personal loan early.

Consider your monthly expenses first-

It would be better if you manage your usual monthly expenses before repaying a personal loan early. It is because such basic expenses like payment of rent, utility, school and college fees of wards, medical requirements etc cannot be put on hold. There is no point in ignoring these payouts in order to pay off a personal loan ahead of time.

It is advisable to not skip payouts that important and should not be avoided. At the same time, you should not delay payment of debts like credit cards, student loans etc. In short, if you are owing money to someone then this should also be considered as primary expense and should be given due importance.

Moreover, you should avoid making a habit of skipping debts which ultimately can ruin your financial planning. The idea is to prioritize all the important payouts and expenses before taking a step ahead towards repaying loans early.

One thing you must keep in mind is that keeping your expenses and savings in place should be your first concern. It does not mean that you are going in wrong direction since you will have to cut off payments of credit cards etc in order to pay off a personal loan before scheduled time. Before taking this step you should weigh your options to decide what will work best for you.

Keep your savings intact-

Saving is basically the part of your income which you don’t use for other essential expenses and has been kept aside. It also defines the portion of your income which is left untouched after spending. So, either ways the purpose of saving will be same that is to set aside some amount of money for rainy day.

One of the best uses of savings is to help your income grow by letting you invest money in many different ways. Savings is very much important to cover unexpected expenses which might occur in future. By saving money for future you can become financially safe and sound. Plus, you can pay off debts with your savings.

The importance of having some amount of saving cannot be denied. So, maintaining savings is very important before you pay off personal loan early. This make sure to keep you financially secured at the hour of crisis.

In scenarios like you are facing a job loss, a medical emergency or you need to repair your home immediately you can rely on your savings. It is a rule of thumb that you should keep at least three to six months of savings on hand to use in case of any emergency.

Using a small amount of saving to pay off personal loan early is indeed a great idea but restrict yourself to a certain limit which would not arise any complicated financial situation for you.

Find out if prepayment of a personal loan comes with penalty-

It is important for you to make sure if any prepayment fee will be charged when you are paying off a personal loan before time. Lender might add this fee to earn extra money. But you can successfully save on some interest by repaying early.

With the help of online loan calculating tool you can easily calculate how much you can save on interest simply by adjusting the loan term and monthly payments. Apart from calculating you should also draw comparison to check if the penalty charged by the lender is more or less than what you are saving on interest. Ideally, if the amount of interest is higher than the prepayment fee then paying off early is the best decision.

Clear all your doubts regarding penalty fees by carefully reviewing the loan terms. You can even ask the lender for any information that you want to get before taking the final step. However, if you find out that the few payments that are left will cost you less than the amount of penalty then paying off loans as per schedule would be ideal. It is because the prepayment fees would be costing more that interest rate that you are paying for.

Make sure how you can repay loans fast-

Before making up your mind to repay your personal loan early you must take a look at few of the ways through which you can achieve this goal faster. But don’t forget to consider your present financial condition before taking the final decision.

You can pay off your personal loan speedily by refinancing it. Refinancing means you will be taking up a new loan in order to repay an outstanding loan. You can either approach your current lender to provide you with the refinancing option or you can ask another lender and choose whoever is offering viable interest rates and terms.

If you are able to improve your credit and income after taking personal loan then chances are there that your current lender might get ready to lower the interest rate at the time of refinancing. On the other hand refinancing with another lender should be considered only when viable interest rates are offered.