Do’s & Don’ts of Repaying Your Personal Loan Early
Are you in a hurry to repay your personal loan? Being debt free can be financially liberating for you. However, rushing into repaying the personal loan should not boost your stress.
Personal loans are an easy and good way to solve any financial crisis. Due to the ease of availing funds, several people jump on the chance of getting one. But investing a massive amount to clear a personal loan can cause trouble. Especially, if you have more than one debt. Some debts you might have are student loans, credit cards, and home loans.
Read on to explore the dos and don’ts of repaying your personal loan early.
Things You Should Do When Repaying Your Personal Loan Early
Personal loans are hassle-free when compared to other options. But if you are repaying your personal loan before the loan tenure ends, consider these aspects for better financial management:
- Plan Your Finances
Have you planned the extra finances required for repaying your personal loan in one go? Clearing the entire loan amount will require ample funds to ensure your other expenses are manageable. For example, you must have sufficient funds to manage your daily expenses and additional debt repayments.
If you get a big paycheck every month, things might be different for you. But if you plan to use your savings to repay the personal loan, you must ensure enough funds after paying the entire loan amount.
Avoiding the extra interest changes might excite you. Yet you need to save enough for any urgent needs. You can avoid increasing your debts this way.
- Talk to Your Lender
Talking to your lender and informing them that you plan to repay the personal loan early will help avoid surprises. Some lenders might not allow you to repay your personal loan early. In addition, some even have additional charges for prepayment.
Read the terms and rules of the personal loan before making a decision. Knowing the policies will help you know more about the contract you signed with the lender.
Suppose your lender is charging an additional cost for repaying the personal loan amount early. In that case, you can replan your budget. Always know the exact loan amount you have to pay the lender. The best way to learn about your repayment options is by contacting the lender.
- Prepare a Budget
Before repaying your personal loan, prepare a budget. Depending on your needs, you can opt for quarterly, monthly or annual funding. Plan a budget according to your monthly expenses. Your daily expenses, like groceries, housing bills, rent, etc., should be fine if you decide to repay your loan early. The bare essentials you cannot live without, like shelter, food and security, must be given priority when you plan your pre-payment.
In addition, you also need to save money for any other debts you may have. While repaying your personal loan early, you must make sure other debt payments are completed on time. If not, this may harm your credit score. Maintaining a good credit score is vital to avail of beneficial loan offers in the future.
Mistakes to Avoid While Repaying Your Personal Loan
Avoiding the following mistakes is crucial to secure your financial future:
- Do Not Use Your Retirement Fund For Debt Repayment
Your retirement fund is the security net for your old age. Remember that as you get old, you will need more assistance, like personal care to ensure your safety. In addition, retirement life can surprise you with urgent medical expenses or bills. But not having a steady source of income might restrict you from taking up a personal loan even if you qualify for one.
Generally, lenders and banks do not offer personal loans to people over 50. This is because senior citizens might not be able to pay the loan. This can cause losses to the lender or bank.
Therefore, do not make the mistake of spending your retirement funds because you are in a hurry to become debt-free. Plan your expenses wisely and only opt for prepayment when you have enough savings or a good income source.
- Avoid Repaying Your Personal Loan Towards The End
Commonly, there are two reasons for repaying your personal loan early. First, you want to spend on something other than the heavy interest rates. The other one is you want to become debt free as soon as possible.
But clearing the entire personal loan amount towards the end might be a mistake. Suppose you want to save the extra money spent on the interest rate. In that case, you must repay the entire amount at the beginning or earlier. Paying the remaining amount towards the end will not help you save any amount on the interest. Instead, if you have only a few payments left, ensure to pay them in instalments and be consistent.
Repaying your personal loan EMIs on time or prepaying the entire amount will help improve your credit score and avail additional benefits from the lender.
- Do Not Overthink
Paying the entire personal loan amount will have several benefits if you’re doing it early on. If you have calculated your net income and have enough savings set aside, feel free to take this step.
Overthinking about repaying your personal loan will only cause delay. Before you know it, you will end your loan tenure with a few repayments. After that, there is no point in rushing your personal loan as it will not improve your credit score.
Every time you delay your decision to pay the loan, you will spend extra money on the interest. Once you have planned your finances well and talked to your lender, go for the early repayment without any hesitation.
Conclusion
Now that you have all the necessary pointers about repaying your personal loan early, you can make a well-informed decision. Conducting proper research before repaying your personal loan is necessary. It is always better to talk to your lender before repaying your personal. This way, you can avoid any additional charges. Besides, your lender can advise you on what is best for your situation.
To learn more about repaying personal loans, visit the Piramal Finance website today. You may also explore their products and services to take care of your money needs.