Many people like the idea of repaying their loans early. It might be because they want to get a mortgage and need to have less debt in order to get one, that they want to reduce the interest that they are paying, that they want to reduce their monthly outgoings or for other reasons. Many lenders are flexible and realise that borrowers want to repay loans early and allow them to do so. Some may have an admin charge for this, so you will need to check as you will need to pay this as well. Once you have made the decision that you would like to repay the loan early, you will need to then find some methods to be able to do this.
- Use savings – if you have any savings then it can be a good idea to use these to repay the loan. These will probably be earning less interest in the savings account than you are paying on your loan. It can be hard doing this. You might wonder whether you are being foolish using savings as you will have nothing to fall back on if you need it However, you can get a loan if you need something to fall back on and in the meantime you will save a lot of money. If you are saving up for something specific then it can be even harder to part with the money as you may have been really looking forward to that item. However, you will much better off in the future without that money to have to find and so it could mean that you will eventually be able to save up much more quickly if you use the money you would otherwise have been using on interest payments to save up. Even if your savings are not enough, using them to partially repay the loan can be a good idea.
- Set a target – it is a good idea to think about what you are aiming for. Obviously, you want to repay the loan early, but how early? If set your sights on just repaying it early you could just repay it a week early. Think about how soon you want to repay it and precisely what your idea of early is. You will then give your brain something more specific to work on and you will be able to plan what you are doing based on that date. It will allow you to calculate how much you will need to repay each month which will help you to be able to set a budget.
- Budget carefully – it is important though, when you are setting the budget, that you make sure that you are able to manage. You need to calculate how much income you have and how much you pay out each month on necessities. Any money that you have left will need to be spent on luxuries as well as repaying the loan. You will need to make sure that you can cover the costs of everything that you need and want as well as putting some money against the loan. It is wise though, to arrange a direct debit to pay extra into the loan when you get paid. If you wait to see what you have left at the end of the month, you may find there is nothing left as you have spent it. If you budget well this will not be a problem and you should have plenty left, but it is not always that easy.
- Earn more – the best way to repay the loan more quickly is to find ways to increase your income. You could try things that will generate a lump sum or something that will bring in more regular payments. If you sell things you own and no longer need, for example, this will give you a lump sum of money that you could put towards it. The same as if you do a freelance job on a one-off occasion. However, if you want a more regular income then you may have to look at ways to earn more. This could be within your own job, perhaps by working more hours or asking for a pay rise or it could be by getting a supplemental job. This could be a part-time job locally or you could look at online work so that you can be at home when earning. There are lots of possibilities and you will need to think about what you would like to do and then see whether there are those sorts of opportunities available for you.
So, if you want to repay your loan early there are options for you to consider. Even if you feel that it will not be an option for you, there are things that you might be able to try that will work for you. It is a good idea to get a good understanding of what you might need to do and how much you can afford to repay and then this might motivate you to make a few changes that will enable you to repay it more quickly.