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Paying Your Loan Back Early |
Paying your loan back early is one of the
best ways to save yourself money, but there can be hidden charges as
well. If you are taking out a loan and think that you might want to
pay it back early, then there are certain things you should take
into consideration before signing up. Here is some advice to help
you to get the most out of paying back your loan early.
Why
pay back early?
Paying back your loan early might seem like
an impossible target at the moment, but if you have a long-term long
then it is possible you will be in a position to pay the loan back
earlier than the agreed term. Paying back your loan earlier will
obviously benefit you because it will reduce the amount of interest
that you are paying. If you can possibly afford to pay back your
loan early then you should try to do so, providing that the
penalties are not too high.
Different names, same penalty
Although paying back your loan before the end of its term can be a
great idea, there is a chance you will have to pay a fee in order to
do so. These fees can vary in price, and also in what they are
called. The same early payment fee can be called an early repayment
penalty, an early redemption fee, a redemption charge or even a
financial penalty. It is important to check your loan policy to see
if there is a charge for paying early. If you are not sure, then
contact your lender for help.
How much will it cost?
Paying back early does not carry a set penalty fee, but in general
the amount is around one or two months interest. This means you need
to work out when the best time to pay back the loan is. Usually, it
is easier to pay back the loan early when you can afford to pay back
the entire amount outstanding. However, you should avoid this if you
are near the end of the loan term, because the charges may be as
much as you save. However, some loans will allow you to pay back a
certain amount early before you have to incur a charge. If you can
afford to then pay back these amounts, as you will not get charged.
Flexible loans
If you really think you will want to pay
back your loan early, then you might want to think about getting a
flexible loan. These loans have higher interest rates, but they
allow you overpay. This means you can pay back your loan much more
quickly when you can afford it without having to incur any penalty
charges. However, you should only consider one of these loans if you
are really serious about paying the loan back early due to the
higher interest rates.
No penalty fees
Another
alternative is to find a fixed rate loan that has no penalty charge
for early repayment. Although many people think only more expensive
loans have this benefit, these days some of the cheapest loans have
no charge for early repayment. If you want to pay your loan back
early, then make sure you get one with no penalty charge.
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