You may have recently been looking to borrow money online and you may have one or even more short term loans that you are repaying. Almost always, the reason anyone turns to loans from a payday lender will relate to having to pay off some unexpected costs such as a medical bill or car repairs. Falling into debt and needing loans like payday and installment loans can be very stressful and having to take out any loan, be it a $500 loan or something larger can sometimes add increased financial pressure.
However, it may be the case that you have realized that you do in fact have the money in order to repay your payday loan early. If this is the case and if you are finding that you are a little more on top of your monthly finances, paying off a loan early may be a viable option, which can help you get your finances back on track sooner rather than later.
Repaying your payday loan early is definitely possible but you have to check with your lender and the contract that you signed what happens if you decide to pay off your payday loan early. It is possible that you may be charged an early repayment fee or have hurt your credit score (especially if you already have bad credit) if you decide to pay off your payday loan early.
Even if you have borrowed $100, there are things that you must consider before deciding to pay off your payday loan early. This guide takes you through the advantages and disadvantages of paying off your payday loan early and whether or not you should do it.
What Are The Advantages Of Repaying My Payday Loan Early?
When it comes to repaying a payday loan early there are of course, some advantages to repaying any loan early if you have the money in order to do so. However, you should always consider your financial position and assess whether you can truly afford to repay a payday loan early or if doing so will mean that you will fall into debt again and need another loan to get you out of trouble. Also, you should always speak to your lender before you repay a loan early as some lenders may charge early repayment fees, which can penalize you for paying off a loan early.
However, many US lenders will encourage you to repay your loan early if you are able to do so. With lenders that allow early repayments of loans, you should find out whether there is a maximum amount you can repay, of if you will incur early repayment charges over any amount of repaid money.
Here are some of the reasons why it might be a good idea to repay your payday loan early:
Repaying a Payday Loan Early Can Be Cost Effective
When you pay off your payday loan early then you could save money on future interest fees. You can save thousands of dollars by repaying your payday loan early because you do not end up paying interest on your future repayments.
Remember, when it comes to interest, the costs are ‘compounded.’ This means that the interest you are charged over time, is in fact ‘interest on interest’ as well as on the initial and borrowed loan amount. Therefore, if you were to borrow $1000, you would repay the loan amount plus interest to the lender. However, after the first amount of interest is added to the loan amount (usually after the first month), subsequent interest charges are added to the initial loan amount and previous interest amount.
If you repay a loan early, you can then use this money elsewhere in life, to help you pay off other debts or in areas you would not have been to able to use it before, helping your overall debt situation and your overall financial situation.
Repaying Payday Loans Early Can Help Your Financial Situation
Repaying your payday loan early, if your lender allows it can simply lead you to having less personal debt. If you are looking to improve your financial circumstances; having more money for savings and other investments, then you need to be in less debt. If you realize that you have a little additional money, putting that money into paying off any loans and financial commitments is a wise move to avoid further charges and increased levels of personal debt.
By repaying your payday loan early you will have less debt and allow yourself to feel more secure in your financial status. You will also go some way in improving your credit score, as lenders and any future finance providers will be able to see that your loans have been repaid early, a very desirable financial practice.
Repaying Loans Early Give You Peace of Mind
Paying off your payday loan or any other loan early inevitably gives you peace of mind when it comes to your finances and debts. You do not have to carry on worrying about making monthly repayments or facing the consequences of not repaying your payday loan.
This will save you stress and time, especially if you are hit by other unexpected circumstances in the future which leads to you not being able to pay. You will then cherish and value the time you can spend with friends and family and you will not have to worry about debts and financial commitments hanging over you.
What Are The Disadvantages Of Paying My Payday Loan Early?
As with any form of loan or debt, you should always do everything you can to repay your loan on time or early if you can. You should always avoid not repaying a loan or financial commitment on time as this may lead you into a spiral of debt. Not repaying a payday loan or other loan on time will also damage your credit score and your prospects of being able to borrow money in the future from any lender or finance provider. You can even be taken to court by a lender if you fail to make your required repayments on time.
Payday Loan Penalty Fees
Many payday loan lenders will charge early repayments penalties or fees if you are looking to pay off your payday loan early. This is because when they gave you the money they were expecting a certain amount of money back and you are giving them less, with the interest amount being lower on loans that are repaid before they are due to be.
Sometimes this amount may be a percentage of the loan balance or a flat fee. You must look at your payday loan contract before deciding to repay your payday loan early because it may end up costing you more to pay off early.
Can Repaying a Loan Early Harm Your Credit Score?
Paying off your payday loan early may also harm your credit history and credit score, although this is likely to vary from lender to lender and you should always check in advance. It may temporarily hurt your credit rating, especially if it was your only loan or you paid off your lowest balance amount (bringing your average debt up).
There are easy ways to increase your credit score quickly and paying off early should only temporarily hurt your credit score.
Repaying Loans Early Can Leave You With Less Money For Yourself
Should you repay a payday loan or other loan early, you will, of course, have less money for yourself if you spend a large chunk of the money on repaying your payday loan early. Even if you have the money technically to repay it may not be the wisest decision if you have other bills to pay off. Budget and think about how best to go about paying off your debt before you decide to pay off your payday loan early.
Should I Pay Off My Payday Loan Early?
In order to decide whether you should pay off your payday loan early, you will have to think about both the positives and negatives in the short and long term. If you are looking towards the long-term and looking to improve your financial circumstances and decrease stress then it may be a good idea to repay your payday loan early.
However, in the short-term this could cause you to pay money to your lender in fees as well as temporarily harm your credit score. Consider your own financial situation as well as the contract that you have with the lender before deciding whether or not to repay your payday loan early.
