Ways to Pay Off a Personal Loan

 

Most personal loans have fixed rates and interest is calculated either daily or monthly on the remaining balance. So when you pay it off early, you stop the clock on interest.

Let’s say you owe $5,000 and wipe it clean ahead of schedule — you’re cutting out months (or years) of interest you would’ve otherwise paid. That’s money back in your pocket.

What Are the Best Ways to Pay Off a Loan Faster?

A few solid strategies include:

  • Add extra to your monthly payments. Even $100 extra per month can shave down the balance quickly.
  • Make lump sum payments.
  • Tax refund, bonus, side income — throw it at the loan.
  • Refinance. If you qualify for a better rate or shorter term, refinancing can accelerate your payoff. Be careful that you factor in upfront refinancing costs to ensure it makes sense to do.

Overall, small extra payments can make a big difference over time.

Prepayment Penalties

Some lenders do charge a fee if you pay off early — especially if they’re losing out on interest they were counting on.

If it’s a small penalty and you’re saving more in interest, it may still be worth it. But if the fee’s steep? Run the numbers before making a move.

Best Payment Schedule

When deciding between biweekly payments vs. larger monthly payments vs. lump sums, you may be wondering which is best.

Each one helps, but here’s how they play out:

Biweekly payments:

26 half-payments = 13 full ones a year. That’s an “extra” payment without much pain.

Larger monthly payments:

If cash flow allows, this is the fastest path.

Lump sums:

Great when you’ve got one-time funds to apply.

Use whichever fits your situation — just be consistent.

Common Mistakes to Avoid

  • Skipping the fine print: Always check for prepayment penalties.
  • Overextending yourself: Don’t put every dollar toward the loan if it means neglecting your other expenses or savings.
  • Ignoring higher-interest debt: Knock out the most expensive debt first — it’s the smarter play.

Will Paying Early Affect My Credit Score?

Usually in a good way. It lowers your debt-to-income ratio and shows responsible behavior.

That said, your score might dip slightly if this is your only loan or if the account closes — but that’s usually short-lived. In the long run, reducing debt looks good to lenders.

Comments

Post a Comment

Popular posts from this blog

7 Things Millionaires Understand About Money

Image
  Building wealth is often about thinking differently. Millionaires approach money, investing, and lifestyle choices with a long-term, strategic mindset that separates them from the average person. Here are 10 key money principles that millionaires understand and apply consistently. 1. It’s Not About How Much You Make Millionaires focus on overall net worth — not how much they make annually. Your net worth is the value of all your assets (real estate, investments, retirement accounts, etc.) minus liabilities (debts). A six-figure salary doesn’t guarantee wealth if savings and investments aren’t more prominent than your spending habits or debt. In terms of spending, millionaires spend on things that grow in value, like real estate, and minimize their debt on things that don’t grow — like clothing. Understanding net worth can help people focus on how to best accumulate things that appreciate — like real estate, fine art, education, index funds and businesses and avoid spending on lif...
Read more

What to Consider With Tax Advance Loans

Image
A tax refund advance loan is a short-term loan offered to taxpayers based on their anticipated tax refund. They rely on the projected refund as collateral, making the process quick but with specific risks and conditions. Considerations on Tax Advance Loans As an accountant, I’d highlight a few critical insights: Speed vs. Cost : These loans are marketed for their convenience — offering funds within days or even hours — but often come with fees, interest, or other charges that can significantly reduce the value of the refund. Some providers offer “no-fee” options, but these may be bundled with higher tax preparation costs. Misaligned Expectations : One risk is that the loan amount is based on an estimated refund. If the IRS adjusts the taxpayer’s return — for example, due to missing documentation or a mismatch in reported income — the loan recipient could face repayment challenges. Targeted Audience : Refund advance loans are often marketed to younger or lower-income taxpayers or those ...
Read more

4 Smart Investments

Image
Many clients ask what low-risk, tax-efficient investments make the most sense in today’s market — especially for high earners looking to grow or protect capital without excessive exposure. Below are seven smart, accessible investment options that offer a range of benefits from steady returns to tax advantages. 1. High-Yield Savings Accounts (HYS) High-yield savings accounts (HYS) offer higher interest rates than standard savings accounts, sometimes even reaching 4–5%. For example, if you put $10,000 in an account offering 4%, you’d earn $400 in interest over a year. This is a solid option if you want low-risk growth for your cash while keeping it easily accessible. HYS accounts are a good choice for short-term savings, emergency funds, or parking money you don’t need right away. Online banks often offer the best rates and the FDIC insures accounts up to $250,000. 2. Certificates of Deposit (CDs) A CD is a time deposit where you agree to lock your money for a set term in exchange for a ...
Read more