Smart Tips for Speedy Personal Loan Repayment

You may feel shackled by monthly payments on a personal loan when you are looking to stow away money for other expenses like buying a home. Unless completely settled, the loan will prevent you from achieving your long-term financial goals, thanks to a large chunk of monthly payments. In this scenario, the best solution seems to be paying off your unsecured loan faster.

It is a good idea to contact your lender before coming down on one side of the fence or the other. Paying off your loan faster has many benefits, such as:

• You will save a lot of money in interest payments.
• The settlement of the debt will make your budgeting easier as you will have fewer bills to manage.
• The spare money can be utilised for other expenses and saving goals.

Financial experts recommend carefully weighing up the pros and cons before paying off your loan early. Ask your lender if you are allowed to make payments on time without incurring any early repayment fees. Lenders can charge interest for a few months as a penalty. Some can even add early exit fees. Make sure you are saving money despite early settlement. If not, drop the idea of early repayment.

Bear in mind that the early settlement of your loan will not right any wrongs on your credit report. You will not see any significant improvement in your credit rating. Previous missed payments will stay on your credit file for two years, and defaults will stay for six years from the day of record.

It makes more sense to prioritise expensive debts like loans without guarantor and revolving credit card bills. At least, it will reduce your credit utilisation ratio and debt-to-income ratio.

How to settle a personal loan faster

If you have set your heart on early repayment of your loan, the following tips will help you settle your debt faster:

• Make additional payments

You can increase your monthly payments through direct debit or make ad-hoc payments as and when you can afford to. Apprise your lender of your plan to make an extra payment. Do not forget to ask them if they will charge any early repayment fees. You can get these details from your loan agreement. Make sure you and your lender are on the same page to avoid any bewilderment down the track.

• Whittle down your expenses

Look over your budget to pay off your loan faster. You can find some areas where you can stop spending money. The saved money can be put towards your loan payment.

• Cut back on your monthly subscriptions you are not using, like gym, magazine, and streaming services.
• Look for ways to cut back on your auto insurance. Compare policies and choose a lower premium.
• You should avoid eating out and takeaways. Eat at home more often. Money saved on your restaurant food can be put towards your loan payments.
• Cut down on discretionary expenses. Make sure you do not make impulsive buys.
• Buy goods from a thrift store.
• Buy groceries in bulk to earn discounts and coupons.

Make a proper spending plan and stick to it. Unless you settle your debt, you will have to keep a tight rein on your spending.

• Look for ways to increase your income

Increasing your income is another way to improve your repayment ability. When you have more cash coming in, you can easily make payments faster. Here are some ideas to consider:

• Do overtime if you get paid for extra hours.
• Get a side gig. Dog walking and babysitting should come in handy.
• Sell unwanted items on eBay and social media. Thrift stores also accept used items. Your clothes and old furniture can be sold at better prices.
• Use a windfall, tax refunds or any unexpected cash gifts to make advanced payments.

You can also look for a job with a higher pay rate. If your current income is not sufficient to cover all your expenses, look for better opportunities.

• Use your savings

You can use your extra savings to settle your debt quicker, but make sure to have a desirable size of an emergency cushion. Despite using a portion of it for a loan payment, you should be able to tide over when an emergency crops up. Use savings to pay off your loan only when they are in surplus.

Dipping into an emergency cushion will leave you vulnerable to a debt trap. You will end up taking out 12 month loans for unemployed from direct lenders when you lose your job, for example. It will make your finances more difficult to manage.

• Refinance your loan

Early repayment fees can be very high, so early repayment might not be a suitable idea for you. What should you do instead? You should refinance your loan. Refinancing will help you take out a new loan at lower interest rates. The new loan you will take out will pay off your current unsecured loan. You can refinance from an existing lender or a new lender, but it s subject to early repayment fees.

Compare deals so you can avail yourself of the lowest possible interest rates. Your credit report should be in good condition to take advantage of lower interest rates. At the time of refinancing, you may be allowed to borrow more money. Make sure you do not do it because it will put burden on your pocket. A few lenders may put you on a longer repayment plan. It is a wise attempt not to choose that because you will end up paying more interest in total. Be careful while choosing a repayment plan. A shorter repayment period will let you get rid of your debt faster.

The final word

You should weigh up your financial situation before paying off your debt before time. Early settlement is advised if it is not subject to early repayment fees. It will help reduce your debt-to-income ratio and help your budget breathe.

Do not be under the impression that early settlement will help improve your credit score. Previous defaults and missed payments will stay on your credit report and will drop off after a stipulated timeframe.

Consolidate your loans if you are tackling more than one loan. It will help you take out a new loan at lower interest rates, and monthly payments will be more manageable. Your credit score should be up to scratch to avail yourself of lower interest rates.