There are lots of people that would advise us to pay our loans back early. There are positive reasons for doing this which are well worth thinking about.
- If you repay a loan early it will normally cost you less money. You tend to be charged interest on the money that you borrow and you will pay more interest if you hold the loan for longer. This means that if you repay it early, then the interest will be less. Even if you pay off a chunk of the loan and so not repay it all, you will find that it will be cheaper for you and so it is worth considering doing this. However, there are some lenders which will charge you a penalty for repaying early and you will need to check and make sure that your lender does not do this or if they do, that you will still be better off repaying.
- If you repay early you will end the debt more quickly. This can make you feel better, knowing that you no longer owe the money. Some people will not feel comfortable that they are in debt and so if they can get rid of it by paying it off early they will feel a lot better.
- It might look better on your credit report if it can be seen that you repaid a debt early. It is always hard to be completely sure as to what those looking at your credit score are actually interested in, but it is generally the case that they will want to see that they can trust you. If you not only clear the loan, but do it early, then this is very likely to be seen as a positive thing.
However, it is worth thinking about the opposite side to things before you rush ahead and repay the loan.
- You will need to find the money to repay the loan early and that could mean that you will be short of money for other things. It is worth being extremely careful in calculating whether you really can afford to repay it early. If you are not careful, then you could end up needing money desperately for something else. You will not want to borrow again in this circumstance, so be sure that you are confident that you will still manage.
- It is important to make sure that you do not use money to repay the loan that you should otherwise be using for other things. If you have other bills to pay, food to buy etc, then do make sure that you are buying these. You might find that you will have to go short or not pay for something essential and this could not be good if it means that you go hungry or get cut off because you do not have enough money to pay the bill.
So, you can see how important it is to weigh things up. There are big advantages to repaying early, but you will have to make sure that it will work for you. Just plan things carefully and think about what else you might need to pay for before you do it. It could end up costing you more money rather than less, if you repay it and then cannot pay your bills or need to take out another loan. Therefore, make sure that you have a quick look at your bank statement and think about what you need to pay for so that you can be totally sure that you will be able to afford the cost of the repayment of the loan.