If you’ve recently inherited some money or your financial circumstances have changed, you may want to pay off your loan early. It’s always good to try and clear your debt, but before you pay off your loan, make sure it won’t cost you more in the long run.
Early settlement figure
Before you pay off your loan, you will need to request an early settlement figure from your lender. This will include the total amount remaining on the loan as well as any settlement fees and other charges.
Not all lenders charge for making early repayments, but some do. Fortunately, there are some restrictions on how much they can charge.
Requesting an early settlement figure doesn’t mean you have to pay off your loan early. You can change your mind and stick to the existing terms if you prefer.
If you do decide to pay off your loan early, you have 28 days from when you make the request to when you have to pay.
If you are switching to another provider or a money transfer credit card, you are essentially taking out a new loan to pay off your existing loan.
Be sure to account for any settlement fees when working out which loan is best. If the total you have to pay on your new loan (including any related charges) is more than the total payable on your current loan, then it might not be a good idea to switch.
Paying off your loan from savings or inheritance
If you have saved, won or inherited some money, you might want to use it to clear your debts. It can be a good idea to start with the debts that cost the most – these are the ones with the highest interest rates and fees.
Bear in mind that there may be some charges for paying off debts early. If you only have a short term left on your loan, you may find that there is no financial benefit to paying it early once you add in the fees.
If the interest rate is low on your loan, then you might prefer to put your money in a high-interest savings account instead and continue paying back your loan as usual. This option may be beneficial if the interest you earn on savings is more than the interest you pay on the loan.
Interest rates go up and down all the time, so make sure you keep checking what you earn in interest against what you pay.
Key points to consider
Many lenders will charge you an early settlement fee if you want to pay off a personal loan early. Include this in any of your calculations before deciding what to do. You can find all our fees and charges here.
About Morses Club
At Morses Club, we try and help our customers make their money stretch a little further by providing money-saving tips on our blog. However, there may be times when you need a little extra help covering an unexpected cost. That’s when one of our quick cash loans could help. A quick cash loan isn’t always the best option for everyone, so check out our how it works section to see if it is right for you.