What happens if I pay off a personal loan early? Understanding Personal Loans
You can always repay a personal loan early. However, some lenders will charge a fee for exiting your loan agreement early. Plenti has no early repayment fees on consumer personal, auto and renewable energy loans, whether you are paying monthly or making extra repayments.
The whole story.
It might seem rough that you're charged for your financial diligence, but there is a method in the madness. Generally, your loan’s interest payments contribute to covering your lender’s funding costs and expected profits. If you repay early, the lender loses out on the remaining interest payments they expected to receive. To compensate for this loss, the lender may charge an early repayment fee.
Understanding Personal Loans
Personal loans are a type of unsecured loan that allows individuals to borrow a lump sum of money from a lender, which is then repaid over a set period of time, usually with interest. These loans can be used for various purposes, such as consolidating debt, financing a large purchase, or covering unexpected expenses. When taking out a personal loan, it’s essential to understand the loan agreement, including the loan term, loan balance, and interest rate. A good credit history can also help you secure a lower interest rate and more favorable loan terms.
To fee or not to fee?
That’s a good question! It’s worth doing the sums to figure out whether you’re better off suffering the dreaded early repayment fee in order to finish your loan early. You may still be ahead of the game by reducing the amount of interest you’ll pay over the long term.
While paying monthly is the standard, switching to fortnightly repayments can help you pay off your loan sooner and reduce the total interest paid.
The fee is usually calculated by looking at the remaining loan balance and loan term. For example, fixed rate personal loans often charge an “economic cost” or “fixed cost” for repaying a loan earlier than expected.
If you’re feeling unsure, call your lender to discuss the early repayment fee so that you know exactly how much you’ll be expected to pay.
Strategies for Early Repayment
Some lenders may offer flexible repayment options, such as unlimited extra repayments, which can help you pay off your loan early. If this is the case, paying off a personal loan early can save you money on interest over the life of the loan. There are several strategies to achieve this goal. One approach is to make extra repayments, which can be done by paying more than the standard repayment amount or making lump sum payments using extra money, such as a tax refund. Another strategy is to increase the repayment frequency, such as switching from monthly repayments to fortnightly repayments. This can help you make more frequent payments and pay off your loan sooner.
Making Extra Repayments
Making extra repayments is a great way to pay off a personal loan early. Extra repayments can be made at any time, but it’s best to check with your lender first to ensure that there are no penalties or fees associated with making extra payments. In addition, it’s essential to consider the loan balance and loan term to determine the best approach for your individual circumstances.
The good news.
Early repayment fee is something you can avoid.Seek out a lender who doesn’t charge an early repayment fee so you’re not penalised for your financial diligence.
At Plenti, we believe in tailoring personal loans to suit your unique financial situation and lifestyle. This means rewarding your strong credit history with attractive rates that are personalised to you and offering the flexibility to pay it back faster. In fact, we don’t charge you fees or penalties for paying your loan back early.
This means you can increase your scheduled monthly repayment, make an extra payment, or pay off the loan in full at any time without being stung for extra charges.
It’s your life – you’re in control.
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