We encounter many situations wherein we have to rely on loans. And where there is a loan, there is a debt that follows. But is it better to pay off loan early? Does that affect our credit score?
We often become perplexed and overwhelmed after seeing the debt pile. This is often due to mismanagement. All that is required is a sense of systematic financial arrangement that will allow you to be on time with repayments or even be an early payer. So how to repay the loan faster?
We will list down some ways through which you can pay off your debts in a much faster way.
1. Go for Bi-weekly Payments. You can choose to pay the lender every two weeks instead of the regular monthly repayment
Paying your loan early will save you money that amounts due to the interest. This will also decrease the overall term of the loan.
With the surplus money you can do so much with your life. You can invest it or you can save it for retirement or you can pay off other debts.
However, you need to consider this with your lender first. There should be no penalties associated with early payment.
2. Part prepay your loan with every salary hike you get. You can do that by incrementing the EMI account with every hike in your income. Even a moderate increase in the income saves a great deal of interest. For example, If you get an increase of 7%-8% then you can easily increase the EMI amount by 4%-5%. This little increase in the EMI can lead to the completion of loan repayment at a much faster rate thus saving a lot of interest and time.
3. Refinance when you have many loans. Taking a loan against your existing asset again helps in waving off other debts in place and also helps in reducing the overall interest rates that are spread over multiple debts. We will explain how.
Refinancing basically is paying off your existing loan and, as we advance with a new one while using the same property as collateral or security. You can utilise refinancing to reduce the term of a longer mortgage or a switch from a fixed-rate to an adjustable-rate mortgage.
4. Convert credit card dues to EMIs. Credit cards are otherwise convenient but they also give you a hard time if you spend without thinking.
If the credit card bills become insanely high then it is time for you to ask your credit card issuing company to convert your due payments into EMI. Many of the credit card companies allow the customers to pay off in 6-12 EMIs. However, if the amount is large then it might even get extended to 24 months.
5. Most importantly, bring in a wave of change in your lifestyle too. It is important for you to strike a balance between what you spend and what you save. Do not run into recurring debts. Also, keep in mind that paying off debts after the due date affects your creditworthiness. So it is advisable to pay on time and not fall prey to debt traps.
So do not wonder anymore is it good to repay home loan early? Is it better to pay off loan early? Don’t run away from repayments. Investing in the healthy habit of paying on time will help you to steer clear of debts and will also help you to live in financial stability.
To repay your loan quickly, you can pay EMIs on a bi-weekly basis, increase your EMI amount with a complementary increase in income, convert big credit purchases into EMIs and more.
Penalty on early repayment depends on the lender you borrow from. As such, if you want to avoid any prepayment/foreclosure charges, choose a lender accordingly at the time of availing of the loan. With Fibe, you can get a loan at zero pre-payment closure charges.
If you pay off a loan too early, the lender may levy some penalty charges. You can confirm the same before making an early payment. It is always advisable to go through the pre-payment policies of the lending company.
Yes, if you are saving more on making an early repayment, it is always a good idea. You can check this by assessing the charges/penalties that the lender may levy when you repay early. If it is non-chargeable or the charges are lower than the interest you save, then paying off early is a good idea.
Yes, whether you make a part-prepayment or foreclose your loan account, you will save on interest. However, it is crucial to take into any charges/penalties that the lender may levy. If the penalty is higher than the interest you save, you will effectively save nothing and only go debt-free sooner.