Should a Loan be Paid Back Early?
One of the best ways to save money for yourself is to pay back your loan early. Putting extra money in a bank as part of your savings account can instead be used to pay your loan. This money can become a good investment which only earns interest when put in a bank at less than 1%. If this money is used to pay the mortgage, this will earn for you a higher return rate.
Although you may think that repayment of the loan is impossible at the moment, you may find it smart to pay back a loan earlier than the agreed term especially if this is long-term. This will benefit you in the long run since this reduces the amount of interest that you have to pay. If you think you really have the capacity to pay back your loan early, then find the time to accomplish this as soon as possible before the penalties become too high.
It is truly a great idea paying back your loan before the agreed term ends, but expect that there is always a fee that goes with it. These fees can vary in name but no matter what it’s called, this is the charge or fee for processing your early payment. This early payment fee is also termed by other lending institutions as early redemption fee, early repayment penalty, a financial penalty, or a redemption charge. You should check your loan policy if there is such a charge for paying early or better still; call your lending company if you have queries on this matter.
Early payment of loans does not carry a standard fee for the penalty but usually, this will amount to about one or two month's interest. Because of this, you need to schedule your payment by working out when is the best time for repaying the loan. Maybe the best time will be when you can easily afford to pay back the entire outstanding amount in full. But this decision must be avoided if you have almost paid your loan or you are already nearing the end of the loan term as chances are, the charges may be as much as the amount you will save. There are loan lending institutions though, that allow you to pay back early without incurring a certain fee. This is the best time to pay the amount in full and without any penalty at all if you can really afford it.