Is it feasible to pay off a personal loan early? Indeed, it is possible, but there are several pros and cons to consider before deciding to repay your personal loan ahead of schedule.

If you’re keen on paying off your personal loan early, numerous strategies can be employed, such as making higher or additional payments, earning extra money, exploring balance transfers, and altering your spending habits.

If you’re seriously contemplating this, it’s crucial to thoroughly review your loan terms, evaluate the advantages and disadvantages, and devise a plan for repaying your personal loan.

Seven Strategies to Quickly Repay Personal Loans

Paying off personal debt faster than anticipated can be easier than you think, provided you stick to a plan. Discipline is essential, though it can be challenging due to financial constraints.

Here are the best methods for accelerating debt repayment:

1. Make Larger Payments

Paying more than the minimum monthly payment on personal loans, which typically have fixed repayment amounts, can help you clear the loan quicker.

The downside is that it may leave you with less budget for other expenses.

2. Extra Payments

One effective strategy for quickly paying off personal loans is to make multiple payments per month.

By repaying more frequently, you’ll reduce the balance quicker, enabling you to pay off the loan before accruing more interest. Part of each payment goes towards the principal, with the remainder covering interest.

However, depending on your lender, additional payments may need to be directed specifically towards the principal.

3. Allocate Year-End Bonuses

It might be tempting to spend a substantial sum from a year-end bonus or tax refund on desires like vacations or a new TV.

However, using this money to pay down your personal loan could be more beneficial in the long run, saving you money and allowing you to repay the loan faster.

4. Find New Ways to Earn

Earning extra income to allocate towards your personal loan can be a wise move.

Platforms like Upwork offer freelancing opportunities, allowing you to earn additional income outside your regular job. Investing all of this extra income towards your personal loan can have a significant impact.

If freelancing isn’t for you, consider overtime at work or driving for Uber.

Be aware, however, that earning more might push you into a higher tax bracket, meaning the money you make could be taxed more heavily. This is certainly a factor to consider before seeking additional work or employment.

5. Save More

Cutting costs in other areas of life to free up money for your personal loan repayment is another strategy.

For instance, canceling cable TV subscriptions. Many apps available today offer subscription services providing all the channels you’d typically watch on cable at a much lower cost.

Review your subscriptions to ensure you’re not paying for services you don’t use, which is essentially wasting money.

6. Utilize Balance Transfers

This involves taking advantage of lower introductory rates.

Personal loans can be transferred to balance transfer cards. Be sure to read the terms of the balance transfer card, as some issuers may not allow transfers from personal loans.

While this doesn’t eliminate debt, it can help reduce your monthly payments, making it easier to make additional payments.

If considering this, compare 0% introductory APR cards and be mindful of factors beyond the introductory period.

7. Change Spending Habits

The best way to overcome debt and repay personal loans faster is to change your lifestyle habits. This might include dining out less, skipping movies, not buying concert tickets, or eliminating any non-essential bills.

By reducing or eliminating these expenses, you can free up money to repay your personal loan.

Are There Penalties for Early Repayment?

Generally, paying off a loan before the term ends is advisable to save on interest.

However, depending on the loan terms and company, early repayment might incur penalties.

• Prepayment Penalties: Some companies charge a fee for paying off personal loans early, usually calculated as a percentage of the loan balance. Each company varies, but prepayment penalties will be listed in your loan agreement.
• No Penalties: Many companies do not charge for early loan repayment. SoFi, Lending Club, and Marcus by Goldman Sachs are a few examples.

Does Early Repayment Affect Credit?

While paying off a loan early to avoid high interest might be appealing, consider the minor downside – your credit score might be slightly impacted.

Credit bureaus look at credit mix, repayment history, and credit utilization, so closing a loan early could potentially harm your credit score. Nonetheless, any impact should be minimal.