Personal Loans : Is Early Repayment a Good Use for

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Personal Loans : Is Early Repayment a Good Use for Spare Cash?

Reducing your overall debt level as much as possible is always a good idea, and is usually recommended as part of a budgeting plan. If you have some spare funds available, you might be tempted to clear your personal loan, as nearly all loan plans allow for full repayment before the term is over. However, there are a few things to bear in mind before deciding whether paying off your loan is the best use of your spare cash.

Firstly, loan providers make their profits by charging interest, and if you clear your loan early then you won’t be paying the lender as much interest as you would if your loan went to its full term. Obviously, this means they will make less profit out of you, and so many lenders will write an early repayment penalty into the loan agreement to make sure that the arrangement is still profitable for them if you repay early.

This repayment penalty, also known as a redemption charge or a settlement fee, will often calculated as a percentage of the outstanding balance at the time you clear your loan, and depending on how early on in the repayment schedule you are, this could...

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