Category: Loans

Loans

How to Pay Your Loan off More Quickly

It can often be a really good idea to pay a loan off early. You will be able to reduce the amount of interest that you pay and therefore gain financially and also lift the burden of having a loan from you.

Before you start you need to do some calculations. You need to work out whether you will be better off financially if you pay your loan off early. In most cases you will be, but there would be a few exceptions where this is not the case. You may be able to borrow at such a low rate, that you can invest the money that you have borrowed and make a profit. This is most common seen is endowment mortgages, when rather than paying back the mortgage, money is invested each month and this gains in value to pay back the lump sum at the end of the mortgage term. There may also be 0% finance deals which could be worth taking advantage of where you can borrow money for free, but you need to make sure that you pay it back so that you do not get charged.

Another important calculation is any early redemption fee or administration fees associated with early repayments. Some lenders will have a huge charge for this, particularly if you are tied in to a fixed rate of borrowing and it could be cheaper to stay with them than move or not possible to find the cash to pay the charge. A new lender may charge you for using them too, especially if you are swapping a mortgage as they may wish to do a survey and credit checks etc which they may charge you for so you will need to research that and take it into account.

Once you have decided that it will be beneficial to pay your loan off early then you need to find ways to free up the money that you need to do so. If you have savings, then it is probably better to use them to pay off the loan that keep them in a savings account. This is because most savings accounts pay out less interest than your will be charged for having a loan. It is worth checking this though, just to be sure. Any money that you regularly save, should be paid against the loan.

Then you need to consider whether you can increase those payments at all. You may be able to earn more money or spend less. There are normally ways that people can cut down on spending by cutting down on luxuries. It could be that they can buy less clothes, go out less, buy less luxurious food, reduce how much they spend on their phone or TV cut down on what they smoke and drink or things like this. The best way to choose where to cut down is to take a close look at everything that you are spending. Carefully see whether there are things that you buy that you could easily do without, spend less money on or would be happy to stop buying so that you can get out of debt more easily. You may be able to buy some things from different places in order to save money. Perhaps by swapping suppliers, brands or retailers you could still buy the same things, but just at a lower cost. You may be happy to go without some things, or you may not want to, but either way it is likely that you will be able to find some ways to save money. Earning more will be easier for some people than others. It all depends on how much time you have and where your skills lie. However, you may find that you can ask for more hours of work, take on a second job or find freelance work online which could help. If you put all of the extra money that you have earned and what you have saved form spending less against the loan, you will find that you can whittle down the amount bit by bit and it should be paid off fairly quickly. The more you pay off, the lower the amount of interest you will have to pay as it is charged on the amount of debt left and so the debt will become easier to pay off with time.