Paying off your personal loan ahead of schedule might be tempting. Who doesn’t want to shake off debt sooner?
But before you rush to make that final payment, there’s more to consider than just getting rid of monthly bills. Some lenders welcome early payoffs with open arms, while others might charge extra fees that eat into your savings.
The Pros and Cons of Paying Off Your Personal Loan Early
Before making extra payments toward your loan, it’s worth weighing the potential benefits against the drawbacks. Your financial situation is unique, and what works for others might not be the best move for you:
Pros of Paying off a Loan Early |
Cons of Paying off a Loan Early |
| You’ll save money on interest over the life of the loan. | Lenders who want to recoup lost interest might charge you a prepayment penalty. |
| Your debt-to-income ratio will improve, helping you qualify for future loans. | Using savings for loan payoff could deplete your emergency fund and financial safety net. |
| You’ll have more available cash each month once the payments end. | Early payoff might not boost your credit score as much as maintaining a perfect payment history. |
| You’ll be completely debt-free faster, reducing financial stress and anxiety | This money could potentially earn more if invested elsewhere, especially in a high-return market. |
| You can reach other financial milestones sooner without loan payments holding you back. | You’ll lose any tax advantages if your loan type qualifies for interest deductions. |
Does paying off a personal loan early hurt your credit score?
When you pay off the loan early, you’ll likely see a small, temporary dip in your credit score. This happens because closed accounts eventually fall off your credit report, potentially shortening your credit history. This minor effect is typically outweighed by the benefits of reducing your debt load.
The positive impact of making all your monthly installment loan payments on time remains on your credit report for years. Plus, lowering your debt-to-income ratio by eliminating the loan can actually improve your ability to qualify for other loans at a lower interest rate in the future.
The financial benefits typically outweigh any temporary credit score concerns if you can pay the loan off ahead of schedule without straining your emergency fund. The interest rate savings often make early payoff worthwhile, even if your score fluctuates slightly in the short term.
5 Ways to Pay Off Your Loan Early
1. Make Biweekly Payments Instead of Monthly
If you want to pay a personal loan off faster, try splitting it in half and paying every two weeks instead of one monthly payment, which means you’ll make 26 half-payments annually. This is the equivalent of 13 full monthly payments instead of 12. The extra payment each year can significantly reduce your loan term without straining your budget.
2. Round Up Your Payments
An easy strategy is rounding up your payment to the nearest $50 or $100 to pay off a loan early. For example, if your monthly payment on your home repair loan is $320, try paying $350 or $400 instead. These small increases add up over time and can shave months off your loan while being barely noticeable in your monthly budget.
3. Apply Windfalls to Your Loan Balance
When you get unexpected money like tax refunds, work bonuses, cash gifts, or inheritance, use at least a portion to make a lump sum payment on your loan. These one-time payments can dramatically reduce your principal and the overall interest you’ll pay.
4. Cut Expenses and Divide Savings
Review your monthly expenses and identify areas where you can trim costs. Maybe it’s canceling unused subscriptions or eating out less frequently. Redirect these savings directly toward your monthly loan payment to pay off your personal loan faster.
5. Consolidate High-Interest Debt with Yup Loans
If you’re juggling multiple high-interest loans or credit cards, consolidating with a lower-interest personal loan from Yup Loans could save you money and help you pay off debt faster³. With competitive rates and flexible terms, many borrowers find they can make the same monthly payment but pay off their debt months or even years sooner.
Ready to Take Control and Pay Your Loan Off Early?
Thinking about paying off a loan early? Starting with the right loan can make all the difference. Yup Loans connects borrowers with lenders through our simple online form³.
Our service streamlines your search by sending your information to multiple lending sources with just one, three-minute application¹. This saves you time and makes finding potential loan options easier.
Everyone has different financial priorities, so access to various lending sources matters when planning your financial future.
Request funds today – one application with Yup Loans could open doors to loan opportunities you might have missed on your own³.