A personal loan can become a burden over time despite its primary benefits. Now, the question is, can you pay off personal loans early? Yes, you can pay off a personal loan early. However, the respective bank or financial institution may charge a prepayment penalty for your early payoff.
Here goes the investor’s guide on whether paying off a personal loan early is beneficial or not.
General Terms of a Personal Loan
Typically, a bank allocates a personal loan to cover versatile expenses. This amount is given to you for a certain duration, like 7-10 years. You have to repay the sum plus interest monthly. So, paying back the whole amount before the specified timeline can save some money on interest.
Can You Pay Off Personal Loans Early
As we have mentioned earlier, there is no restriction on paying off the personal loan earlier than the stipulated deadline. So, you have to contact the lender and inform your intention.
The lender will arrange all the paperwork. And finally, after handing over the money or check to the cash counter, you get rid of the loan. However, the respective bank or financial institution may charge you a small amount of prepayment penalty. What is a good APR for personal loans?
Should You Pay Off the Personal Loan Early
After having some excess amount of money in hand, you can decide to pay off the personal loan faster. But we suggest you consider the following factors before paying off the loan early.
Are You Putting Pressure on Your Monthly Expense?
This question comes first. After paying off the loan early, you may have to struggle with your monthly expenses. Then, it could be pointless.
By making an early payoff, you are not saving much money. So, you check your monthly expenses like utility bills, spending related to entertainment, groceries, etc. If you have no problem maintaining the required monthly expenses, then pay off the personal loan early.
Do You Have the Least Amount of Savings?
This question comes second. Dig into all your bank accounts, etc. Explore what is your savings status. Ensure you have a standard amount of savings to tackle any emergency expenditure.
Otherwise, you may have to take another loan due to having no cash in hand. We strongly recommend you go for early pay off the personal loan if you have adequate savings.
Is the Bank Charging You Any Prepayment Penalty?
This is a fundamental concern before paying off early. This action of yours may lead to earning you some savings from not paying the interest. But, if the bank charges additional money as a penalty for your early payoff, then some additional calculations are left to do.
Benefits of Payoff the Personal Loan Early
Paying off the personal loan early has the following benefits.
- The psychological relief is that you need not pay any debt now!
- You can save some money across the length of the loan period in terms of interest.
- Paying off the personal loan early gives you a boost to your personal finances.
So, can you pay off personal loans early? We hope now you have a clear answer. You must factor in the pros and cons of paying a personal loan early.
Consider your monthly expenses, bank savings, and prepayment penalties before paying off the debt. If you are still undecided, take one or two months for further calculation or talk with our expert financial advisors. Think wisely and have a grip on your finances. Also, whether I should report personal loans on taxes is a common question.