Should You Pay Off Your Personal Loan Early?

Being stuck in debt is stressful, and punishment for defaulting on the loan can take the form of a lawsuit, a drop in your credit score, or hefty late payment fees. That is why it’s crucial to do everything in your power to repay your debt as fast as possible. 

You may have heard that paying off what you owe as early as possible can help you save some extra bucks in the long run, which is sometimes the case. 

In general, the longer you are bogged down paying back a debt, the more interest you will pay over the loan term. Hence, it seems a good idea to pay off your loan early. 

Yes, it’s possible to repay your loan early, helping you shave off a few months from your repayment period. But take note that some lenders might ask for a prepayment penalty fee for paying off the loan early. 

This fee is either an amount that shows how much the lender will lose in interest if you pay off the loan early or computed as a percentage of what you have left to pay on the personal loan. Additionally, keep in mind that how the penalty is calculated will vary from lender to lender. 

Also, all the penalties are generally included in your loan agreement. On that note, if you decide to pay off your personal loan before the end of the loan term, call your lender or check your loan documents to ensure you won’t be charged a prepayment penalty fee.