Repaying your loan before the scheduled due date is a great goal to have. You will pay less interest than is set out in your loan contract, and you may save on annual or monthly fees. But before you repay your loan early, you should check if you'll be charged prepayment penalties.
Yes, you can pay off your loan ahead of schedule and make an early exit. However, some personal loans charge a fee for either extra repayments or early exit. This penalty is put in place to deter borrowers from closing their loan accounts before schedule.
Before you make any payments, you should look into whether your lender will charge you. Make sure that by closing early you will be saving, and not paying out more.
Depending on the type of loan and your lender, you may or may not be charged. Fixed rate loans, for instance, often come with an early exit penalty. In some cases, how much you'll be charged will depend on when you exit. Exiting in the first year of your contract may incur more charges than if you exit after.
As we mentioned before, not all lenders will charge an early exit penalty. The table below outlines what lenders charge if you exit early.
There are a number of reasons why people would choose to exit their loan contracts early. These include:
Paying your loan off early has its advantages, but there may be instances where it's not beneficial. These include:
Getting out of debt is never a bad idea, but you should also approach your repayments judiciously. There are other ways to reduce how much debt you're in. This includes making extra repayments. You should look into whether your lender has penalties or limits on how many extra repayments you can make. Making extra repayments could also help you achieve your financial goals and pay down your debt faster.
Before you close your loan account, you should:
The process will differ between lenders, but it's generally a good idea to start the proceedings by contacting your lender and getting the total payout figure. If you're comfortable paying it, then you can proceed. The lender will either direct debit the amount from your account, or will provide details on how you can make the payment.
After the payment has been made, check if your loan account has been closed. This may take some time, but it's important to confirm. You can also check your credit report to see if it's been updated with the new account information. You can also check if your credit score has been affected. You can check both your credit score and report for free on Finder.
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