One of the paths to financial freedom is paying your loans off faster. By satisfying your balance ahead of schedule, you could save money on interest and free up cash for other expenses. If you assume that your current budget won’t allow for increased or additional loan payments, you may want to take a closer look. Finding even a small amount to put toward your loan balance can go a long way.
To help you get started, here are some common techniques to paying off a personal loan faster:
Make biweekly payments
Making biweekly payments could be a great option for paying your loan off faster. By splitting your standard monthly payment in half, you could be left with more manageable half-payments and a chance to possibly reduce your total interest paid and the life of your loan.
Be sure to consult your lender before starting biweekly payments. Lenders have different policies and you should make sure your new payment structure will produce the results you are looking to achieve.
Make extra payments
Instead of making biweekly payments, some people might prefer to make one or more extra payments per year. Others may also choose to pay an incremental amount on top of their regular payment. Ideas for being able to fund a whole extra payment or incremental payment amount include:
- Money set aside throughout the year
- Birthday money
- Holiday money
- Work bonuses
Please note that the impact on your loan can vary based on the timing at which you make your additional payment(s).
Round up your payments
If you have room in your budget to round up your payment amount, it may be wise to take action. Rounding up your payments is a very simple yet effective method to paying off a loan early. After a few months, your new payment amount may become routine as the extra money may chips away at your principal balance.
To help you understand this payment option more clearly, here is an example of rounding up a payment to the nearest hundred dollars:
Janet took out a $15,000 loan with an APR of 25% and a term of 60 months. Her original monthly payment amount was $440.27. After rounding up her payments to an even $500, an additional $59.73 was deducted from her principal balance every month. It only cost Janet a little extra to make a positive impact on her loan and possibly save money on total interest paid in the long run.
If your personal loan provider offers refinancing, it may be worth looking into. Refinancing is one of the most traditional ways to pay off a loan faster and save money on interest. Please consider the following criteria before you decide to apply for refinancing:
- Credit score - If your credit score has improved since you acquired your loan you could have better odds at getting approved for refinancing. Go to annualcreditreport.com to request your free annual credit reports.
- Payment history - Is your payment history clean? Lenders will want to see that you pay your accounts on time.
- Loan amount - The amount being refinanced may also influence your odds at getting approved. However, some lenders put more weight on credit score and payment history over the remaining loan amount.
Be aware that refinancing may extend the life of your loan. Carefully consider all options and consult your lender or financial advisor before making a decision to refinance.
Take small steps toward a big goal
Paying off your personal loan faster may not require a significant impact on your budget. Whether you make a biweekly payment or round up your monthly payments, the slight uptick in payment amount may not even affect your monthly budget at all. It may, however, make a sizeable impact on the life of your loan.
For information on paying back your personal loan faster, please contact your local Branch Manager to discuss your options.
This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.