July 27th, 2011

Why You Should Pay Your Loans Off Early

9 Comments | Twitter | |

cash

**Today’s guest post is contributed by MoneyAisle.**

There are mixed opinions when it comes to paying a loan off early, but the good seems to outweigh the bad.

There are a few ways to pay off a loan before the length of a loan has run out. You can make larger monthly payments, pay a large lump sum, or make additional payments throughout a monthly period. Any of these tactics will work well, and the extra money you pay will help decrease the overall loan amount.

The question then becomes: How do these payment strategies work for different loan types?

Paying an Auto Loan Quickly

Most people make monthly auto loan payments. Attempting to pay an auto loan off before the end of the agreed terms, or completing an auto loan refinance in exchange for a shorter term, not only helps your credit score, but will save you money in the long run.

The interest that you pay on a monthly loan can add up. When you increase your monthly payments or pay off a loan in its entirety, that interest no longer accumulates. You’ll also have the pure satisfaction of having more liquid money at the beginning of each month. Every dollar that you don’t put towards your car payment can be put towards something else!

Getting Rid of Personal Loans Fast

Just like a car loan, paying a personal loan off quickly is also a good idea. If it is possible to pay off a personal loan quickly, you can gain lots of spending money. Your credit rating will also improve if you are able to pay off a small loan within a short period of time. This, in turn, will improve your chances of gaining a loan in the future.

Some personal loans can’t be paid before a loan has run its course, but this depends on your loan terms. Simply look at the contract you signed to figure out whether or not you can pay a personal loan before the term has expired. If early payment is a possibility, go ahead and put any money you can spare towards paying it off.

Boats, RVs, Motorcycles, and All Other Loan Types

Almost any loan can be paid early. If you simply make minimum loan payments each month, you might wind up paying more than you think. Interest can really add up when it comes to loans of all kinds, but paying more than the owed monthly amount will always save you money in the long run.

If you can’t afford to pay off an entire loan amount in one shot, consider adding a few extra dollars to each monthly loan payment. Whether you have a personal, boat, RV, motorcycle, vehicle or other loan, you can count on the fact that deciding to pay a loan off early is always a wise decision.

MoneyAisle.com allows the once tedious undertaking of finding the best interest rate on loans to become efficient, simple, and organized by putting the entire experience in one online location where over 160 financial institutions bid for your business. Without any personal information required, consumers are empowered to find the best interest rate hassle-free.

.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

9 Comments

  1. What about a mortgage? Should one hurry to pay it off soon?

    Patrick at 4:42 pm on July 27, 2011
  2. Wow, what a worthless fluff post

    No at 11:02 pm on July 27, 2011
  3. Hi, there! Thanks for stopping by. You’d be surprised at the fact that many don’t realize just how much paying a loan off early can benefit your credit and overall financial health. True, most of this is common sense, but it never hurts to be reminded of the strategies we can employ. Our guest poster, Money Aisle, reminds us of one of these strategies in this post.

    bethy at 8:36 am on July 28, 2011
  4. Hello! I love your blog. Paying off a loan early is very smart and for all the obvious reasons. Not only does it save on finance charges, it saves on the “nerves” of owing anyone anything at all, lol.

    Kathryn Sias at 12:14 pm on July 29, 2011
  5. Paying off loans early – – ANY loan, including mortgage – – is always a good thing! Having peace of mind that comes from not having loan payments to worry about in case of a setback (injury, illness, layoff) is INVALUABLE.

    Always have an emergency fund in place first, otherwise a small setback could mean major difficulties. I’ve met people who have been throwing everything at their loans which, on the surface, seems to be a good thing, but when the furnace goes out (or the transmission, or their back) they don’t have anything to cover the shortfall.

    Edu @ DollarMusings at 6:09 pm on July 30, 2011
  6. I have friends who are starting to pay off their college student loans and some are barely able to make their minimum monthly payments, but others are doing as much as they can to get them paid off because they know how much their interest rates are. Although the interest rates are a lot lower in student loans, they still don’t want to pay for money they didn’t even borrow!

    CreditShout at 12:11 pm on August 1, 2011
  7. I just took out a secured loan to build credit yesterday. The loaned money is sitting in a HYSA, and I plan to use that money to pay off the loan as each payment comes due. If I pay it off early, won’t that prevent me from developing the payment history I need to boost my credit score?

    TheGooch at 2:54 am on August 11, 2011
  8. Hi there! Since you took out the loan specifically to build your credit, that might be true. But imagine this: If you have a high interest loan–one that you didn’t take out to build your credit history–and you’re able to pay it off earlier, saving that money you would have paid in interest would be the wiser choice. Don’t you think?

    bethy at 10:16 am on August 11, 2011
  9. I took an unsecured personal loan of $5000 from my bank (one of the ‘big name’ banks). I paid it off in full (within 3 months) before the scheduled maturity date of the loan. Now I see an outstanding balance of $900 on my loan account. How is that possible?

    John Mills at 11:23 am on February 15, 2013

Enter your comment