We often hear about people paying off their loans early or are advised that it could be a good thing to do. However, you may wonder whether this is something that anyone can do and whether you might be able to do it or not.
Some loans are far easier to pay back than others. For example if you have an overdraft or a credit card then you will be able to make repayments whenever you like for any amount of money. However, many loans have regular repayments and so you may think that you have to pay those and have no choice but to wait until the term of the loan is up before it is paid off. However, this is not always the case.
It is worth investigating to see whether you can pay your loan back early. Many loans will have this facility although there may be fees for doing so. They will often have an ‘early redemption fee’ and the amount that this is can vary greatly. It can be anything from a small administration charge or a month’s interest to a huge amount of money. It is therefore worth finding out and calculating whether it is worth doing. The way to calculate this is to work out how much you would pay if you continued as you are. So add up the interest payments as well as any fees or charges that you pay with it. Then calculate how much you would pay in total, in fees if you paid it back early. You will then be able to see whether you will save any money if you do pay it back early and how much you will save.
Of course, it is all very well calculating if it is worth paying a loan back early, but you will need the funds to be able to do this. You will need to be able to manage financially after you have paid extra money back on the loan. You may decide to pay a bot extra each month so that you can reduce the term of the loan or you may prefer to pay it back in a lump sum. Either way, you will need to find the money to be able to do this. If you have some savings, this could be a really good use for them because you will save more money in the long run, by not paying the interest on the loan, compared with what interest you will get on the savings. This will depend on the rates of the savings and loan interest but it is very likely that the loan interest will be higher than what you are getting on the savings. It is worth comparing them to see. If you do not have savings, then you will need to find a way to free up money in other ways.
You may be able to reduce your spending to free up money. Perhaps you will be able to switch suppliers, providers or retailers so that you buy the same things but at a cheaper price. This way you will not feel that you are making a significant change to your lifestyle; but you will be saving money. You may also want to consider buying less items. Many of us spend money of things which are not necessary and you may find that you will be able to cut back on some of these. It could be difficult but if you make sure that you keep your goal in mind and imagine how good it will feel to be free of the debt, this should help. You will have more money available once the debt is paid off as you will not be making repayments and so you can delay your spending until then. You could even consider trying to earn more money to pay it off even more quickly. Perhaps you could work more hours, ask for a pay rise or try to get a better paid job. You could do some freelance work, start a business, sell things or try monetising your hobbies so that you can earn more money and use it all to pay back the loan as quickly as possible.