Should a loan be Paid Back Early?
There are some people who try to pay their loans back early. This can sometimes be a wise choice and sometimes not. Most people would think it would be better to pay it back early, but actually, this is not always the case.
Loans tend to be more expensive, the longer we have them. They are also a burden. Some people decide that they want to pay back their loan, no matter whether it costs them more money, because they want to get rid of the burden of it. If the loan is causing a lot of stress, then this is understandable and a personal choice. Check these calculators for loan repayment to know how much you will have to pay for your loan.
It is better, however, to only pay a loan back early if it benefits you financially. It can be complicated to work this out, but you can do it. You will need to know whether the lender will charge you for paying the loan back early. You should be able to simply call them up and ask them.
Most lenders will charge to pay the loan back early. This could just be a nominal fee or it could be a lot of money. Some will charge the equivalent to what you would have paid had you not paid it off early. In this case it is not beneficially financially to pay it back early. Most will charge less than the cost of keeping the loan for the full term.
One thing to bear in mind is the cost of the loan and whether you would be better off investing your spare money than using it to pay off the loan. Most loan interest is higher than savings interest and so it better financially to pay back a loan, rather than keeping money in a savings account. However, there are times when this could be the case. If you manage to have a very low loan interest and can find an account that pays more. However, most of the time a loan is more expensive than any money you could gain from saving it instead of paying it off.
You also have to consider the consequences to you of paying it back early. If you use up all of your money paying back your loan, how will you feel? You may feel fantastic, really proud of yourself, which is how you should feel. But you may feel really deprived because you have no money left to spend on yourself. You may need to factor this in and perhaps leave yourself a bit of money for the occasional treat, rather than using it all to pay back the loan.
So deciding whether to pay a loan back early, can be a case of doing a selection of calculations. You will need to find out whether it is in your favour financially to pay it back early, after checking whether the lender will charge you for this service. Then you will need to decide whether, even if it is dearer to pay it back early, whether the reduction in stress would make it worth it. It is a decision that is very individual and depends on how that person feels about being in debt as well as the financial consequences of paying it back early.