5 Things to Keep in Mind if You Are Thinking of Paying Off Your Personal Loan Early
A loan with a long tenure may add to your stress, despite all the benefits it has – rebate in taxes and credibility among others. Even if you not are worried, one would love to be free from a loan obligation as soon as possible. One should keep multiple loans only if there is an urgent need. With online applications and easy availability, you can get instant debt if you Need a Personal Loan. Hence, there is no point in accumulating indebtedness and handing over a reasonable amount from your monthly budget to lenders. After all, interest applies to every loan. So what are the things you should be aware of if you are planning to pay off your Personal Loan early?
1. You must, at first, analyse your loan agreement for a pre-payment penalty if you are thinking about clearing your loan. There can be a charge that applies for paying back the mortgage before the defined tenure. Having signed the agreement, you are bound to pay this amount to the bank. This amount is chargeable as the bank will lose the interest which it would have otherwise gained if the loan continued for the defined period. This amount is not the same as the total interest, but a portion of it.
The remaining amount of your credit is the decisive factor for the calculation of this amount. Since the amount varies for various loans and terms; if you need to know about the amount you will have to pay as the penalty, only your bank can tell you the right value. The tenure of a Personal Loan is not very long. Hence the pre-payment penalty will not affect your decision. It is advised to pay off a Personal Loan as soon as you can, but ask your lender if this option of pre-payment applies to your loan or not. There are certain loans which do not have the option of pre-payment.
2. Reading the terms mentioned in your agreement is advised by experts since they know that no two loans are alike. In some cases, there are more advantages to paying the debt off altogether, while in some it is not profitable at all. One disadvantage of pre-payment is that you will not get the tax benefits as usual. You must consider all the advantages and pitfalls before deciding to pre-pay the loan. The amount to be paid varies, and if you choose to pay off the debt at the right time, it is only going to help you manage your finances better.
3. It is important to know that paying the loan off before the due time may cause a dip in your credit score. This fall will be temporary, and your credit score will go up by adequately managing your active accounts.
4. If you are thinking of taking another loan and that’s why you wish to pay away the current debt, you need to know that for a specific time after you close your mortgage, you may not get credit very easily. The chances of approval of a short-term loan are few just after a pre-payment. However, this also has exceptions.
Certain experts have stated that early payment should increase your credit score instead. If you are paying a debt in advance, this means you are a customer who has high credibility, and the bank would trust you with future transactions as well. Which case would apply to you, depends on the terms you agreed upon while taking the loan.
5. There are specific ways to help you avoid the pre-payment penalty. Firstly, try to convince your lender to waive off the fee or offer some rebate. If this doesn’t work, you can consider refinancing the current loan with a different lender. To get the best rates and terms that are suitable for you, this would be the most preferred solution. Also, you can ask the lender to resize your EMIs (Equated Monthly Instalments), this way your tenure will get short, and you can pay off the debt without paying any extra amount as pre-payment penalty.
If nothing works, you can keep your money with you, in your savings account. You will get period interest from the bank on this money. Keep paying the instalment from the same amount and remain stress-free till the loan is entirely paid off. Paying the mortgage, as usual, will be the last option, but if you have made your mind to clear the dues, you can close the credit anyway.
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