If you’re like many Americans, there’s a good chance that you’ve got one (or more) personal loans racking up interest. One key to avoid this is to pay off personal loans fast. Whether it’s a car payment, credit card debt, or even a mortgage, paying off a personal loan early can yield plenty of benefits.
Not only will you avoid future interest and save a little cash, but you may also improve your credit score while you’re at it. However, before you take any of the approaches listed below, be sure to check with your lender – some loan types may include penalties for late or early payments.
Make Bi-Weekly Payments Over Monthly
Most people make their personal loan payments on a monthly basis – but submitting half-payments every two weeks may be able to save you a little money. Not only do more frequent payments mean that your interest has less time to accrue, but you’ll also be making an extra payment every year.
26 payments for twelve months means that you’ll be making an extra annual payment without going over budget. One extra payment may not seem like much, but it can do a lot for paying off your loan in the long run – bi-weekly payments made against a 30-year mortgage could actually pay it off in 26 years.
Make One Extra Payment Annually
Not everyone can commit to bi-weekly payments, but if you still want the same results, you can always just make another extra payment every year – but how does this work for people that are already on tight budgets? You can make your extra payment in a couple of different ways:
- You can spread your extra payment across the year with your other monthly payments. For instance, if you’re making $200 payments every month, you can increase that monthly payment to $216 – which roughly equals the amount that making a separate $200 payment would.
- You can also make your extra payment all at one time. Some people may set aside a little extra cash from their tax refund or their work bonus to pay off more of their loan.
Refinance the Loan
Not all personal loans come with a refinancing option, but if yours does, you may want to take advantage of it. Refinancing your loan can mean a lower interest rate, and the ability to pay off your loan faster – especially if your credit score has improved since you’ve taken the loan out.
Round Up Your Monthly Payments
If you’re looking to pay off the loan more quickly and you’ve got the room in your budget for it, you can always round up your monthly payments. You can round up your monthly payment to the nearest $50 – so, if you’re paying $210 per month, bump your payments up to $250. $40 may not seem like a big difference, but month after month, it can shorten the lifespan of your loan.
Keep in mind that you don’t have to round up to $50 – if you’ve got enough room in your budget, you can try rounding up to the nearest $100.