Living with liabilities is a pricey and nerve-wracking situation. Although, it is not possible in most cases and perhaps the journey is way too long, yet doing so will reduce your financial burden. Whatever the type of the loan is, there are ways to pay off early but the ways you follow significantly matter.
How To Pay Off Your Loan Faster?
Some of it involves choosing large monthly payments to clear the debts and to get off the financial liability as early as possible or some opt to pay a large sum of money at one stretch to reduce the principal amount. Especially when it comes to car loans, it is always better to pay off the loan early to reduce stress, earn better credit, free up your cash flow and to have some money in your wallet. In fact, when you have the car loan, it will certainly impact your house purchase as well. You can get mortgage loan up to 80 percent of the property price however when you have another loan like a car loan, and you will not be entitled to the 80% funds rather there would be a difference in the percentage levels.
Nevertheless, while working towards the goal of becoming debt free, you have to use smart ways to avoid penalties and save money in a possible manner. Let us see, how can it be done?
Avoid Prepayment Penalty
Although paying off the loan early can seem like a logical way to release the burden of daily, monthly and yearly payments, however, the prepayment penalties are one of the most confusing parts of taking on financial liabilities. But what is a prepayment penalty?
A prepayment penalty is a clause in the loan agreement citing that a penalty will be charged if the loan is paid off before a certain period of time. However, this can be avoided when you do these steps
- Talk to your lender to pay off the loan closer to the due date or if they can sidestep the penalty
- Before finalizing the loan, you can get an acknowledgment from the lender to waive prepayment penalties. Although it is a lending act, yet some lenders wouldn’t charge for the prepayment.
- When it comes to car loans, ask to make a principal of $9,999 or to a closer amount. When they post it, ask for the payoff calculation from the lender which is $1 in addition to the unpaid interest. So you would be paying only a penny as a prepayment penalty which is so wonderful
Increase Your Monthly Payments
This is one of the most effective ways to reduce debts. Make your regular payments, in addition, make some savings and add some extra funds to your existing payment. Perhaps, a great strategy that works fine for most borrowers when they have space in their budget. Is it possible to adhere to this strategy on a long road, perhaps yes! When you set up automatic payments for the new difference of the amount, it becomes stationary, and you can fix up your routine accordingly.
Round Off Your Payments
Rounding up your car loan or mortgage loan payments is one of the easiest and effortless way to reduce the duration of the loan terms. In order to achieve this, paying a lump of money at one time is not only an option rather increasing your monthly payments also can make its influence predominantly. For instance, the value of the loan is $30,000, and the interest rate is 3.25% for your loan for a term of 72months. For this loan, you would be paying a monthly installment of 462 dollars. When you can round off to the nearest hundred say $500 a month, it will make a huge impact on your loan term, and you can finish your loan in less than 60 months. Even a matter of few months saves you a great number.
Refinance Your Loan
If you have a loan that has higher interest rates or you feel insecure living with the loan, you can often go for refinancing option. This means that you go for another loan, for example, a personal loan which have better interest rates and with those funds, you can reduce the loan term for the existing loan. Some of the advantages of refinancing are
- You can lower your loan term
- Save money by paying off the loan early
- Options to change your loan type
- Complete peace of mind
In addition to these aspects increase your cash flow by earning extra income (tutoring, home-based business, driving an Uber) and redirect that money towards the loan. The most important thing you need to keep in consideration is not to skip payments. Skipping payments will extend the loan terms and add more stress. So make solid plans and get free from debts in no time.