Should I Pay off My Loan Early?
When you are in a good financial position, you might wonder: “Should I pay off my loan early?” After all, we are all told that debt is bad, so why keep it? However, many experts advise against paying off loans early. Why is it like that? We’ll look into the matter by discussing the pros and cons of paying off a loan early.
Pros of Paying off a Loan Early
One of the benefits of completing all the repayments before the term of the loan is over is that you don’t have to worry about shelling out dollars every month to pay to a lender. Another major plus is that you can save a lot of money in interest payments.
Many lenders don’t allow people to take multiple loans at once. So, by paying off your loan early, you can take out another loan.
Cons of Paying off a Loan Early
Most lenders will charge a pre-payment penalty for paying off the loan early. Typically, this is a percentage of the total loan balance you are paying off. So, the sooner you make all the repayments, the larger the penalty will be.
Debt can be beneficial to borrowers with less-than-perfect credit score. By making regular payments, you can rebuild your credit history and improve your score. Paying off the loan early won’t have a significant positive impact on your credit.
If you pay off your loan early, you might not be left with much cash in your hand. So, when you are hit with an emergency expense, you may not have the money to tackle it. You can’t ask the lender to return your money and might have no option but to take a loan again.
In a nutshell, if you can save your money on interest payments by paying off a loan early and the lender isn’t charging any prepayment penalty, then it might be a good idea to pay off your loan early. However, if the lender is charging a prepayment penalty or you want to use the loan repayments to rebuild your credit, then you will be better off with not paying off your loan early.