Benefits Of Paying Back Your Personal Loan Early
From a surprise medical expense to a child's birthday party or unexpected car repair, there are reasons why Americans apply for a personal loan. The terms of a personal loan can vary, including the payback time frame. You are considering paying off your personal loan early but aren't sure if this is a financially responsible decision.
Here are just a few of the many reasons why it is a great idea to repay your personal loan early.
Save Big Money on Interest
The interest payment on a personal loan can vary depending on several factors, including the loan's size and the borrower's credit rating. Paying back the loan early means you ultimately pay less in interest. This is because the interest on the loan accrues each month. If you pay more on the loan each month to pay it off early, you will not be charged as much money in interest.
For borrowers with less-than-perfect credit, this is a great way to avoid paying additional interest while improving their credit rating.
Lower Your Monthly Debt-to-Income Ratio
Your debt-to-income ratio can have a negative impact on your credit rating. If you have a personal loan and attempt to secure a car loan, mortgage, or any other type of unsecured loan, a higher debt-to-income ratio can make this difficult. Paying off a personal loan early can not only boost your credit score, but it can also lower your debt-to-income ratio.
The combination of less debt and a higher credit score is very attractive to potential lenders.
More Cash in Your Pocket or Bank Account Each Month
Who doesn't want more money in their pocket each month? Paying off a personal loan early is a great way to achieve some peace of mind. Instead of worrying about paying off your personal loan each month, you can put that money in savings or put the money toward another bill.
Is It Ever a Bad Idea to Pay Off a Loan Early?
Unfortunately, there are a few instances when paying off a personal loan early isn't a good idea. A big reason is the potential of a prepayment penalty. Some lenders will penalize you for paying off a loan early. Read your contract or contact your lender to determine if there is a prepayment penalty attached to your personal loan.
From paying less in interest to lowering your debt-to-income ratio, there are several benefits to paying off a personal loan early. For more information on personal loans, contact a professional near you.
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