Typically, there is no penalty for paying off a personal loan early. In fact, it may benefit you as you can save on interest payments and improve your credit score. However, it is vital to check the terms of your loan beforehand to ensure there are no fees associated with early repayment.
The top four tips for paying off your loans ahead of time
1. Pay more than the minimum
Stay focused on making your payments on time and try your best to pay more than the minimum. Making extra payments or paying more than required is the most effective way to pay off your loan early. You can also set up automatic payments to ensure you never miss a payment.
You can also use your tax refund or work bonus toward making bigger loan payments. Directing any financial windfall toward your loan payments can significantly reduce the balance and overall interest paid.
2. Increase your income
It may be helpful to earn spare money to put toward your loan to help you pay it off faster. Here are a few ways to make extra income:
- Sell your unused electronics or jewelry
- Pick up shifts on the weekend
- Ask for a raise at your job
- Deliver groceries or takeout
- Use your car for ridesharing
3. Reduce your expenses
Trimming excess spending can also free up more money to put toward loan payments. When making your monthly budget, lower the amount allocated for unnecessary spending. As you repay your loans, you can incorporate these discretionary expenses again into your budget.
Some of the expenses you may want to consider reducing or eliminating include:
- Fast food
- Gym memberships
- Streaming subscriptions
- High-end clothes and shoes
4. Focus on paying off loans with higher interest rates
If you have multiple loans, you should pay off the highest interest rate loans first. Lowering the interest rate on your loans may save you money in the long run or shorten the repayment period.
Make a list of all your debts with their amounts and interest rates to help you keep track. You should still make the minimum payment on all your loans but direct more money toward loans with higher interest.
5. Speak with a professional
Finally, you can talk with a professional to help you stay on track and repay the loan efficiently. Professional financial planners are great at giving advice on repaying loans and coming up with creative solutions to pay off debt early. They can also help keep you accountable while you’re on your journey to paying off your personal loans.
Bottom Line
Paying off a loan early can be a smart choice. It means you’ll be debt-free faster and might save a lot of money on interest. Overall, making a budget and finding ways to save or earn extra money can go a long way toward paying off your loans ahead of time.
