Tips to make faster loan payments

Want to pay your loan faster? Here are some tips and tricks that might be of help
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Tips to make faster loan payments
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3 min
11-July-2024

Paying off loans is crucial for maintaining financial health and reducing long-term debt. By settling loans promptly, you can improve your credit score, save on interest payments, and increase your disposable income. It also alleviates stress and provides financial freedom. Managing your debt effectively can lead to better financial opportunities and stability. For more information on managing your loans, visit the loan details page.

Tips for paying off your loan quickly

Make bi-weekly payments

One effective strategy is to make bi-weekly payments instead of monthly ones. By doing this, you make an extra payment each year, which reduces the principal faster and lowers the interest accrued over the life of the loan. Some lenders offer this setup for free, while others may charge a one-time fee.

Pay extra when you get extra money

Whenever you receive extra money, such as a bonus or tax refund, consider applying a portion of it to your loan principal. This method significantly reduces your loan balance and the total interest paid. Ensure you instruct your lender to apply these payments directly to the principal.

Revisit your budget

Regularly reviewing and adjusting your budget can free up additional funds for loan payments. Identify non-essential expenses you can cut back on and redirect those savings towards your loan. This disciplined approach accelerates your loan repayment process.

Refinance your current loan

Refinancing your loan to a lower interest rate can save you a considerable amount of money and help you pay off the loan faster. If your credit score has improved, refinancing can reduce your monthly payments or shorten your loan term.

Make wise investments

Investing wisely can generate additional income to pay off your loan faster. Opt for low-risk investments that offer stable returns. Using the profits from these investments to make extra loan payments can expedite your debt repayment.

Pros and cons of paying off a loan early

Pros

  • Lower interest costs: Paying off a loan early reduces the amount of interest you pay over the loan term, potentially saving you hundreds or thousands of dollars.
  • Financial freedom: Clearing debt early provides a sense of relief and financial freedom, allowing you to redirect your income towards savings or other financial goals.
  • Improved credit score: Paying off loans can positively impact your credit score, making you a more attractive candidate for future credit or loans at better interest rates.

Cons

  • Opportunity cost: The money used to pay off a loan early could have been invested elsewhere, potentially yielding higher returns.
  • Prepayment penalties: Some loans have prepayment penalties that may negate the benefits of paying off the loan early.
  • Reduced liquidity: Allocating funds to pay off a loan can reduce your available cash for emergencies or other investments.

How to pay off a loan early with Bajaj Finserv

Paying off your loan early with Bajaj Finserv is straightforward. First, log in to your Bajaj Finserv account and check the loan payment section for your outstanding balance and any applicable prepayment penalties. Next, plan how much extra you can afford to pay each month. Bajaj Finserv offers flexible options for making extra payments or paying off your loan in full. Always ensure that extra payments are applied to the principal to maximise interest savings. By following these steps, you can efficiently reduce your debt and enjoy financial freedom sooner.

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

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Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

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Frequently asked questions

Is it good to pay off personal loans early?
Yes, paying off personal loans early can be beneficial. It helps reduce the total interest paid over the loan term, improves your credit score, and provides financial freedom by eliminating monthly payments. However, it's essential to check if there are any prepayment penalties that might offset these benefits.
Does paying off loans early hurt your credit?
Paying off loans early can have a positive impact on your credit score in the long run. While you may see a temporary dip due to the change in your credit mix, eliminating debt demonstrates responsible financial behaviour and can enhance your creditworthiness over time.
How to reduce total loan cost?
To reduce the total cost of your loan, consider making extra payments towards the principal, refinancing to a lower interest rate, and cutting down on non-essential expenses to free up more funds for loan payments. Regularly reviewing your budget and making wise financial decisions can also contribute to lowering your loan costs.
How long will it take to pay off the loan?
The time it takes to pay off a loan depends on several factors, including the loan amount, interest rate, repayment terms, and any extra payments made. Using a loan payoff calculator can help you determine the timeline based on your specific situation and repayment strategy. Making bi-weekly payments or additional lump sum payments can significantly shorten the repayment period.
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