Why Should You Pay Off Loans Early?

Whether you are managing unexpected expenses or consolidating debts, a personal loan is the most preferable option. If you already have a personal loan, you should think about the repayment as early as possible to save more on interest over the loan tenure.

Let’s explore some strategies of how to pay off a personal loan faster without straining your regular expenses.

Key Takeaways

• Bi-weekly payments are relatively easier than yearly loan repayments
• Refinancing your personal loan can also help you pay off the loan faster
• Early personal loan payments save a lot of money on interest
• Make sure to check the penalties and fees for paying off the personal loan faster

5 Tips to Pay Off Personal Loan Early

Here are the 5 strategies to accelerate your personal loan repayment:

1. Analyze the Debt and Plan Smartly

Before you start planning how to settle personal loan faster, start by reviewing your existing debts and your monthly spending. Pay close attention to all of your monthly payments such as other loan EMIs, credit card bills, insurance premiums, household expenses, and more.

After evaluating your monthly finances, create a repayment strategy that fits your budget. Cut down the unnecessary monthly expenses such as OTT subscriptions, movies, eating out, and more.

Furthermore, if you have multiple loans, prioritize repaying the one having a higher interest rate. This way you don’t need to bear high interest rates for a long time and you will be left with fewer loans to manage.

2. Make Bi-Weekly Payments 

By making bi-weekly payments you can easily pay off personal loans faster. This way you pay the personal loan every two weeks rather than a month.

Although this might seem like a small change,it adds up at the end of the year. You will end up making 26 half-payments over 12 months, or 13 full monthly payments.

Ultimately, it reduces the amount you owe and the monthly burden of your loan repayment.

3. Pay Extra When You Earn Extra

Every extra payment in a personal loan counts. You can take a close step in paying off your personal loan faster by making extra payments when you get more than expected.

Use your extra funds received in the form of an yearly bonus, gift money, holiday cash, or tax refunds, in paying the loan amount.

Adding these extra funds to the principal amount reduces the payable interest rate, and you will get closer to the loan's end.

Note: Make sure to contact your lender before adding an extra amount to the principal loan amount as this facility isn’t provided by many lenders in the UAE. 

4. Consider a Second Job 

By taking a second job or side hustle, you can accelerate the loan repayment process. If you get free time after your primary job,you can pursue a part-time job as it will boost your income.

Pay off personal loans early by engaging yourself in second jobs with flexible hours such as pet sitting, babysitting, tutoring, cooking, driving, delivering grocery and food items or just running a social media brand, and more.Apply this extra money directly toward your personal loan to reduce the balance more quickly and pay off the loan sooner.

5. Refinance Your Existing Personal Loan

When you refinance your loan, it means you are taking a new loan to cope with the existing loan. If your existing loan interest rate is high, consider taking a loan with lower interest rates.

Additionally, through refinancing, you can pay the loan amount on the original date by not reducing the monthly payment. As a result, this will reduce the loan tenure and you will pay the loan faster.

Alternatively, refinancing can also be done by increasing the loan term, resulting in low monthly payments. But in this way, you will pay higher interest rates over the loan tenure.

Pros and Cons of Paying a Personal Loan Early

Not sure whether to pay off personal loan early ? Consider the following pros and cons of paying a personal loan early to make an informed decision.

PROS	CONS
Live a debt-free life faster	Impact on your credit Score
Save money on interest	Prepayments fines
Be stress-free	Better ways to allocate prepayment amount

Pros:

• Live a debt-free life faster- Settling a personal loan early helps you accomplish other future goals and you can enjoy a debt-free life.
• Save money on interest- Prepayment of a personal loan can help you save a good amount on the loan interest. It eliminates the future interest payments and saves money.
• Be stress-free- Owing loan leads to mental strains and early loan pay-off ensures a peace of mind.

Cons:

• Impact credit score- You can lose the opportunity to build a strong credit as early loan payment adversely impacts your credit score.
• Prepayments fines - There’s an incurring fees or penalty by many lenders to settle a personal loan early.
• Better ways to allocate prepayment amount- You can invest or save the prepayment amount instead of paying off a loan early.

Frequently Asked Questions