It is a good idea to pay off your personal loan early. The advantages are obvious. You can shorten the overall term of the loan. The financial stress will be over soon and you will heave a sigh of relief afterwards. The other big advantage would be the possibility to save a good sum of money in interest. Wow! You will have extra money to do a lot of things. That seems like a real advantage.
You might be wondering how you can actually do it. Well, there are several ways to do so, but you need to be well prepared for the same from the very beginning. This is because personal loans are generally approved for a fixed term and your lender might not allow you to pay off your loan sooner than the date fixed by the mutual agreement.
Here are some points that you can consider before signing up a loan document. You may need to talk to your lender regarding the same and get your agreement tweaked accordingly.
- Make two payments in a month instead of one: There are three advantages of making bi-weekly payments. You will have to pay less interest over the term of the loan. You will be able to make one extra payment each year (Remember there are 52 weeks in a year, so you will be able to make 26 bi-weekly payments or 13 monthly payments instead of the 12 regular monthly payments). The last but not the least, you will knock off several months during the loan duration, thus enabling you to pay off your loan sooner.
- Pay more than the required payment: Pay a little bit extra than the required each month. A good technique would be to round up your payment. For example, if your payment is $268.28, you could make it to $300.00. This allows you to pay $31.72 extra every time you make a payment. If you are making monthly payment, the amount would add up to $380.64, which is equivalent to one extra payment in a year.
- Pay one extra payment in a year: If you are not able to apply either of the above ways due to certain reasons, you can use money from a fund reservoir to make one extra payment directly. You will achieve the same result as that of the above methods.
- Refinance your loan: It is a tried and tested technique to save on interest and pay off a loan faster. However, it seems a little difficult to apply refinancing in the case of a personal loan. The reason is obvious. You are not likely to find a lender willing to refinance your loan at a better rate of interest unless you have something of value to qualify for a secured loan.
- Use a discount opportunity offered by your lender: It is a smart way to save on interest and shorten your loan term. Banks and lenders may offer some discounts and benefits for using, say a paperless statement or certain other services that help the lender save some money. If you can help your lender keep the cost of lending down, then you are likely to get benefits of the same from your lender.
Have you tried any innovative way to pay off a personal loan early? Share your experience and let others know the various new ways of paying off a loan faster.
If you are wondering where you can get extra money to pay off your loan early, then follow up our article Where to Get Extra Money to pay off a Personal Loan Early.