Is it better to try to pay your loan back early?

Discussion in Loans started by JulianWilliams • Jan 14, 2015.

  1. djdontpay

    djdontpayActive Member

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    ^ This. Make sure when you do part-prepayments, the payments go towards principal and not towards interest. Although, I have dealt with a couple of banks who refused to do that. But, generally, bankers want to get paid.
    Also, remember that depending on where you live, prepayment may or may not cost you money. Finding out helps, but make sure that you don't consider it a barrier to financial freedom. These things can be negotiated. If not, even then, its better to pay the loan off. Because, as you will see, banks will play every trick in the book to keep you from prepaying loans.
     
  2. Denis Hard

    Denis HardWell-Known Member

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    It always is better to pay your loan back early. If you don't it means that you'll be paying more interest on the money you owe. While yes it is possible to negotiate for extensions (on repayment period) fact is the bank will be making even more money from you. This is why before applying for a loan you need to be certain you'll have the money to repay the loan within the stipulated time or else clearing that debt might end up being really hard.
     
  3. explorerx7

    explorerx7Active Member

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    I would say pay-off the loan as fast as you can because you may be able to get a rebate on the interest that is charged on the loan. If you decide to pay the minimum loan payment and invest the withheld funds, you should consider that the interest you would probably achieve from the investment would not be as great as the interest that would be accumulating on the loan, therefore, you may find that you could be in the red in that aspect.
     
  4. Xpence

    XpenceNew Member

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    I think that you first need to invest on the money that you had borrowed first before yet can repay. This will allow you to make a profit before yet can repay. Since you are paying back the initial amount plus the interest, it will be wise to repay within the given time.
     
  5. davos

    davosActive Member

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    Whether you're agree with Hayek or not, I think reading the Austrian school of economics's stance could help you to understand how to manage a loan. For the austrian case, it’s well known that some Austrians have a major problem with “fractional reserve banking” whereby banks pay for liabilities (deposits) by virtue of turning those liabilities into assets (interest paying loans).

    On the other hand; Banks aren’t in business, nor could they remain in business if they simply warehoused money. Instead, they borrow money from depositors seeking a return on their savings, and who don’t need access to their savings right away, only to lend the money borrowed to individuals who do need it right away. The profits come from borrowing at one rate of interest, then lending longer term at a higher rate. Therefore, you will understand that delaying a loan's complete payoff is sometimes for the best interests of the bank. Because you will eventually by delaying the debt you'll end up paying far more what you actually needed at first.
     
  6. Jamille

    JamilleActive Member

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    I would rather use the money to pay back the loan the soonest time possible. There is no guarantee whatsoever that an investment will be successful and that the returns will be higher than the interest that I'm supposed to pay on the loan. On the other hand, paying the loan ahead will mean savings in interest charges and other fees and a boost on one's credit scores that will mean more access to low interest loan offers in the future.
     
  7. Jason76

    Jason76Active Member

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    Paying back your loan gets it off your mind. Also, you can be happy that perhaps your credit score will improve and you can get a bigger credit line. Myself, I recently got a 500 USD credit line from Pay Pal and hopefully, it will increase if I pay it back within six months. Nonetheless, I'd like to pay it back as soon as possible.
     
  8. Nakitakona

    NakitakonaActive Member

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    I may consider myself as one of those persons who pay my loan in advance or before its due date. In so doing, the lending institution is giving me a rebate which is its incentive for their borrowers. That is true to banking institution or appliance company.

    But there are some appliance companies that never offer that incentive. The reason is they have already given their customer the chance of zero interest upon release of his item or product obtained by installment plan. Anyway, it makes you feel better to pay your loan earlier than to pay it on time or worse to pay it late.
     
  9. Jason76

    Jason76Active Member

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    @Nakitakona@Nakitakona I'm wondering, though. How much do they increase the credit line of those who pay back early? For instance, would they increase a 500 USD one to 1000 USD? If they did do that, how long would it take for them to start it?
     
    #29Mar 13, 2017
    Last edited by a moderator: Mar 14, 2017
  10. littlewitch66

    littlewitch66Active Member

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    Although it sounds good paying off a loan early you need to be careful that there is no penalty for doing this. I know that my mortgage carried such a penalty and I would have had a hefty extra charge had I paid it back too early before the said date because the lender loses the interest you would have paid during that time. I only have two years left on mine now so I could pay it off without penalty.
     
  11. dane

    daneMember

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    Personally, I think that it's always good practice to pay off a loan as fast as you can and I always pay more than is required whether it's a loan or some other account. I actually have a list of everything I owe, and in addition to paying more on loans, I always pay double the installment on my smallest bill. This has enabled me to slowly but consistently get out of debt faster than I otherwise would have.
     
  12. luri

    luriActive Member

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    If you can, and if it is possible, you should always pay back loan early. While paying your loan early, you should also check whether your bank allows this provision or not. Some bank charges extra when you are paying back loan before loan period ends. If you pay your loan early, you will save money on interest.