How to repay my loan quickly?
There are a few ways you can repay your loan quicker, but you’ll have to check the terms of the agreement. Some lenders charge early repayment charges, whereas some allow you to overpay earlier to finish the term. It’s best to contact your lender to find out what you can do.
Here are some ways to pay off a loan quickly:
1. Set up a direct debit
Missed, reduced and late payments can all impact your credit score and increase the length of time it takes to repay your loan. You can avoid this from happening by setting up a direct debit so you never forget to make a payment.
Make sure you always have enough funds in your bank account to cover your direct debits (otherwise you could incur overdraft charges if the payment doesn’t go through).
2. Make additional payments
Depending on your affordability, you could make extra payments towards your loan to pay it off quicker. There are a few different ways you could go about this. For instance, you could increase your monthly payments via direct debit or make ad-hoc payments as and when you can afford to.
Remember to check with your lender first, in case early repayment charges apply.
Loan providers often apply charges to compensate for the loss of interest they suffer when you pay off your loan early. This mostly depends on the lender, the amount you owe and how long you have left on your loan.
3. Cut back on expenses
It’s worth creating a budget to see how you can cut down on some expenses and pay off your debt faster. Perhaps you could cut back on unessential bills like subscriptions or gym memberships, for example.
Remember to always maintain payments towards your priority bills (such as your rent, mortgage and council tax).
4. Increase your income
You could also look to pay off your loan quicker by increasing your income and earning extra cash. There are different things you can do, like selling items, working extra hours, or checking your eligibility for benefits.
For more inspiration, read 5 ways to make money from your home.
5. Use your savings
If you’ve already got some savings set aside, consider using some or all of them towards your loan.
This could be a good move if your loan has a high-interest rate and you aren’t earning much interest on your savings. Or you might prefer to keep your savings in case of emergency, instead of relying on credit in the future.
6. Debt consolidation
If you have more than one debt, you could consider taking out one larger loan to pay off your other debts - otherwise known as debt consolidation. Then you just have to make one monthly payment to one lender, which can be much more manageable.
Make sure you consider this option carefully and weigh up your debt consolidation offer. While you could end up on a lower interest rate and cut your outgoings, there’s also the chance you’ll end up paying more over a longer period of time.
7. Contact your lender
If you’re in financial difficulty and cannot afford to pay your fixed loan repayments, you need to contact your lender as soon as possible. They may be able to help you by freezing interest and charges or by setting up a reduced repayment plan. This depends on the lender’s criteria and their own discretion.
Although making reduced payments can make your loan more affordable, it can also affect your ability to get credit in the future. And reduced, missed or late payments will stay on your credit report for six years. So you need to weigh up your options before you go ahead.
8. Make an early settlement
If you have a lump sum of money you could make your lender a ‘full and final settlement offer’. Many will often give you the option to request this figure online or through their app. You pay an agreed lump sum towards your balance upfront, and the creditor won’t pursue you for the remaining balance (if they accept your offer).
Again, remember to check with your lender first, in case early repayment charges apply.
Bear in mind that if you make a partial settlement on a defaulted loan, the default will be updated to ‘partially satisfied’ on your credit report. The default will then drop off your file automatically six years after the date of issue (whether it has been paid in full or not).
In the meantime, you still have the option to pay off the full balance in full. Then the partial flag will be updated to ‘fully satisfied’, which should boost your credit history.
9. Get free debt advice
If you are struggling with debt, you can get free, non-judgemental debt advice from charities like Citizen’s Advice and StepChange. For example, StepChange can negotiate with your creditors to see if they will freeze interest and charges and accept reduced payments.
Remember that making reduced payments can affect your credit score and will stay on your credit file for six years.
10. Switch to a new loan provider
You could potentially pay off your loan quicker if you switch to a new loan provider with better interest rates. First of all you need to ask your current lender what your outstanding balance is (plus any potential early repayment charges). Then check what your monthly repayments are and the remaining term of your loan.
Then you will be able to see if you can make a saving and reduce the time it takes to pay it off by switching provider. It’s also useful to compare the APR, which is the total cost of borrowing expressed as a percentage.
Is it a good idea to pay off my loan fast?
It can be a good idea to pay off your loan fast for a number of reasons. For your own peace of mind for example. You will have fewer bills to manage once it’s paid off which will make budgeting easier. Also, you could put the spare money to something else, like a different debt, savings or spends.
Additionally, the interest applied to loans is usually higher than the interest you can gain using a savings account. And the sooner you pay off your loan, the less interest you will have to pay overall.
Problems with paying off your loan early
You have to weigh up the pros and cons before paying off your loan early. Ask yourself if you can afford to make additional payments.
If you are struggling to meet your current monthly repayments, you could get free debt advice from a company like Citizen’s Advice or StepChange.
Always check if any early repayment charges apply before you make additional payments. According to the Consumer Credit Regulations 2004, lenders can charge up to two month’s worth of interest if you settle your loan early. This depends how long you have left on your loan. It also depends on the lender, as some lenders may charge extra fees on top of the interest.
Also, bear in mind that paying off your loan quicker won’t right any wrongs on your credit report and won’t have a large impact on your credit score. For example, any defaults will stay on your file for six years whether or not they are paid in full.
If you have other more expensive debts then it might make more sense to prioritise these instead. You can improve your credit score by reducing your borrowing on revolving credit. This refers to flexible forms of credit like credit cards, rather than fixed instalment loans. Ideally you want to aim to borrow 30% or less of your credit limit on revolving credit to boost your credit score. This percentage is known as your ‘credit utilisation rate’.
Also, by reducing the balance on your credit cards, you will reduce your minimum payments, which should make them more affordable to repay. This doesn’t apply to loans, as your fixed monthly repayments won’t change even if you make additional payments towards it (unless you renegotiate your terms with your lender).
Will I get money back for paying off my loan quickly?
You won’t physically get any money back. But generally, the sooner you pay off a loan, the less interest you will have to pay. This depends on the lender’s criteria as stated in your original contract. So it’s best to check the terms and conditions of your contract with your lender first.
Some lenders have calculators on their website to show you how much interest you could save. Or you could ask them to calculate it for you over the phone.
Does paying off a loan early reduce interest?
You will save more interest if you clear the balance early. But if you pay it off a couple of months before your scheduled final payment, you won’t save much on interest overall. At the same time, you may be charged higher early repayment charges for paying it off earlier to compensate the lender.
Also, if you decide to use a new loan to pay off your current loan, it will only save you interest if your new loan has better terms.
If you want to see how much less you’d pay by paying off your loan quicker, use our free loan calculator.
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