We will often hear advice that we should repay loans early. There are advantages to doing this but it is also worth some thought because it may not always be the very best decision. So, it is a good idea to think about the pros and cons before you decide whether to do this or not.
Advantages of Repaying Early
- the biggest advantage of repaying early is that you will be able to pay less interest. A payday loan has interest charged each day that you have the loan outstanding and that means that if you repay it early, you will be able to save money. The earlier you repay it, the more money that you will save. Even if you only repay some of the money that you owe, you will be able to save money and so this will enable you to have a cheaper loan.
- Some people do not like being in debt and so repaying it will mean that they will no longer need to worry about this. They will be able to relax knowing that the debt has gone and they are free of it.
- If you can repay before you have to, then this could help you manage better in the month ahead. Payday loans are normally repaid on your pay day and that means it could make it hard for you to manage the rest of your bills that you will have to pay for after you get your salary. Often, we will set up direct debits and standing orders to be paid once we get paid so that we have the money available. If we have paid our payday loan off at that time, then we will not have to use some of our salary in order to pay it and will therefore have more money available for the other things that we will need to buy.
Disadvantages of Repaying Early
- If we repay early it means that we will not have that money available to buy other things. Therefore, if we find that we then need to pay for something else, perhaps that we had forgotten about or to replace something that suddenly breaks there will not be the money available for it. This can be difficult and it means that we may end up having to get out another loan to pay for it if we cannot wait to buy it.
- Some lenders will have a charge for those that want to repay early. It is something that is often done with mortgages and maybe some other loans so you need to check whether this will happen with the loan that you are repaying early. Ask the lender and they will be able to tell you if this is the case. Even if there is a fee, it could be worth paying if you save more interest than the cost of the fee. It could be good to ask them how much you will pay in total in each circumstance and then you will be able to easily see which will be the cheapest.
You can see that it is not really a straightforward decision. It is normally better to repay early because of the money that you save but you do need to be careful and consider the consequences of repaying early and whether you think that it will be worth it for you. Consider you own personal circumstances and this will help you to make sure that you are making the right decision as to whether it is better for you personally to repay it early.