Whether it’s a personal loan, an auto loan, or another sort of loan you owe, repaying sooner will attract less interest. These savings might really accumulate over time.
Plus, there’s something to be said for paying off your debt and not having another monthly payment hanging over your head, so it is wise to choose a biweekly or pay extra each month as this could pay your personal loan faster. Most people even prefer to pay more than the payment scheduled each month.
Paying off a personal loan early is a smarter choice, although it has its own pros and cons. Most lenders do not impose a prepayment penalty for repaying a loan early. If you want to pay off a debt before the end of the term, or perhaps by the end of the year, here are some strategies to help you get there faster.
How to Pay Off a Personal Loan Faster
Here are ways in which you can pay off a personal loan faster. And sort out which option best suits your financial situation for paying off your personal loan payment faster.
• Make biweekly payments
To quickly pay off your personal loan, try out a biweekly payment; although it may appear as much, it helps you make one extra full payment every year. Most lenders assess a one-time setup cost, while others might arrange this free of charge for you.
The advantage of this alternative is that it will not add a significant financial burden or cost to your budget. You may use a biweekly payment calculator to make the calculations. Alternatively, you may just divide your existing loan payment in half and pay it every two weeks.
• Pay extra when you get extra money
Another alternative you should try out to pay off your personal loan faster is to pay more than the maximum payments by applying for large payments when you receive extra cash. Use part or all of the funds obtained from a relative’s Christmas cash present, a year-end bonus, or a tax refund to pay down your loan debt.
If you decide to employ these strategies, keep the following considerations in mind:
- Your payment will not decrease as much as if you paid down your credit card debt.
- Contact your lender and apply the cash to your principal debt.
- Before applying for a higher sum, ensure you have covered your financial bases, such as depositing funds for an emergency fund.
• Get a second job
Finding extra income could help you save enough money to pay off your debt early if you’ll have the time for it by getting a second job. So you don’t get bound to another scheduled work. You could attempt jobs with flexible hours, such as tutoring, food and grocery delivery, driving Uber, and a variety of other opportunities.
It was shown that one-third of individuals having a second job require the money to cover their daily living expenses. If you fall into this group, you should continue making your monthly personal loan installments to avoid placing an undue burden on your finances.
• Revisit your budget
Reviewing your monthly budget is very important; take the time to go through it, from your eating out to movies and monthly subscriptions, to know if there are places you could scale back.
Whether you haven’t looked at your auto or house insurance statement in a while, check to see whether the premiums have recently increased. You might save much by switching to a provider that gives discounts for new business or provides generally lower prices than you thought.
• Refine your current personal loan
This might be a suitable alternative for those who would like to improve their credit score after taking out a bad credit debt consolidation loan. When you refinance a personal loan, you often get a new loan with a reduced interest rate. If your credit score has improved to good or exceptional, you may be able to save 10 to 20% on your APR.
You can also pick a shorter payback period, although this typically results in a larger monthly cost. However, lenders often provide cheaper personal loan rates for shorter durations.
Frequently Asked Questions
Can I pay off my personal loan faster?
Yes, it’s possible to pay off your personal loan faster by making extra payments or paying more than the minimum due each month.
How do extra payments help pay off a loan faster?
Extra payments reduce the principal balance, which means less interest accrues over time. This allows you to pay off your loan faster and save money.
Are there any penalties for paying off a personal loan early?
Some lenders may charge a prepayment penalty for paying off a loan before its term ends. Check your loan agreement or contact your lender for details.
How can I make extra payments on my personal loan?
You can make extra payments by logging into your online account, sending a check or money order, or contacting your lender for assistance.
Should I prioritize paying off my personal loan over other debts?
If you have high-interest debt, like credit card debt, prioritize paying that off first. If your personal loan has the highest interest rate, focus on paying it off first.
Can I use my savings to pay off my personal loan faster?
Using your savings to pay off a personal loan can help you save on interest and become debt-free faster. Ensure you maintain an emergency fund for unexpected expenses.
How can I stay motivated while paying off my personal loan?
Track your progress, celebrate milestones, visualize your financial goals, and automate your payments to stay motivated during the repayment process.
What happens after I pay off my personal loan?
Once you’ve paid off your loan, you’ll receive a confirmation from your lender, and your account will be closed. You’ll have more money available each month for other financial goals.
Will paying off my personal loan early improve my credit score?
Paying off a personal loan early can potentially improve your credit score by lowering your credit utilization ratio and demonstrating responsible borrowing behavior.
Is it better to pay off my personal loan early or invest my extra money?
The choice between paying off a personal loan early or investing depends on factors like your loan’s interest rate, risk tolerance, and financial goals.
