Most people in their lives will take out some form of loan at one point. This could be a mortgage to help buy your own home, a loan to buy a car or a payday loan to cover an unforeseen emergency. Loans can be very useful in life to give you extra money when you really need it. Many loans will be for longer periods though and this means you will be paying it off for a while. A big question for many with this in mind is whether you can pay a loan off early. Many people who take a loan out are simply keen to get it paid back as soon as they can which is understandable.
But can you really choose to repay a loan early?
Check the agreement you signed with your direct lender
The very first thing you should do when thinking of repaying any loan earlier than planned is to check your lender’s agreement. When you sign up for a loan with the direct lender in question, you will complete paperwork which sets out all the conditions around it. Before you confirm with them that you want to repay your loan early, check out what the small print in your agreement says.
Some loans you take out, for example, may stipulate that this is simply not possible or put certain conditions on early repayments. A good general tip is to also think about whether you might want to repay early before signing up for your loan. If you know that this might be something you wish to do, you can make sure any deal you sign allows it.
Watch out for early repayment fees and charges
One other key thing to bear in mind when thinking of repaying your loan early is any fees this will bring. Many direct lenders will charge you certain fees for paying what you owe off earlier than planned. This is because they will be losing out on some of the interest you should be paying each month for the whole term of your loan. Early repayment charges can sometimes add up and be quite expensive. In light of this, it is key to know what charges any early repayment might be so you can budget for them. This also means you can avoid financial difficulties if you find that any early repayment fees will be too much to cover.
What are the benefits of repaying a loan early?
As well as the practical side of paying off any loan earlier than originally planned, you should think about if it is really worth it. The great news is that there are some real benefits to paying off any money you have borrowed before the full term is up.
The most obvious is that you will have paid the debt off you owe and no longer have that to worry about. Living debt free is something most people are trying to achieve and it certainly is less stressful. Paying off your loan early also reduces the financial strain on you as you will not have to find the money to make repayments each month. This spare money can then be saved or used to treat yourself.
Most people don’t know this but paying off a loan early is also a good move for your credit score. Not only does it remove debt from your financial records but it also shows that you paid off the loan in full and earlier than planned. All this will help to give your credit score a boost and show that you are a lender who can be trusted by other companies. If you then need another loan in future, it will come in very handy.
Early loan repayment is worth thinking about
As the above shows, repaying a loan early has some fabulous benefits but is also something to consider carefully. It is certainly worth looking at the agreement you signed when taking out the loan and picking up on any early repayment fees. If you do this though and want to access the benefits of repaying your loan early, it is an option worth mulling over. With the money you save, you can then begin to plan again for the future.