There are plenty of times when, in life, you may want to take out a personal loan. Say, you are getting married (and can’t get the guest list below 150 people), are finally renovating your dated bathroom, or got hit with some unexpected bills that took your credit card debt uncomfortably high.
Taking out a personal loan can be a smart financial move, but you may want to get out of debt faster than the usual five-year term. One strategy is to accelerate the repayment of your loan. You may be able to do that in a variety of ways. Read on to learn the details of how this works so you can decide if it’s the right path for you.
Key Points
• Paying more than the minimum on your loan can help you get out of debt faster and save on interest.
• Strategies include making biweekly payments, using financial windfalls, or adding extra to your monthly payments.
• Always check for prepayment penalties before exceeding your minimum payment.
• Refinancing may offer better terms if your current loan has fees or a high interest rate.
• Accelerating loan repayment can free up money for long-term goals like saving, investing, or homeownership.
Paying More than Your Minimum Loan Payment
If you’re looking for ways to manage your debt, exceeding your minimum loan payments on a regular basis may improve your financial outlook. It could also potentially build your credit score. Ultimately, getting out of debt sooner may give you greater financial freedom to do the things you want to do with your money.
But before you start prepaying your loan, be sure to check with your loan holder to confirm their policies regarding loan repayment. Some lenders charge additional fees for paying extra each month or paying your loan off earlier than planned.
There are a couple of ways you might look at paying off a personal loan sooner:
• You can pay more than your minimum payment each month (again, checking if this will trigger fees) to get out of debt sooner.
• If you receive a financial windfall, such as a bonus at work, a gift, or a tax refund, you could see about putting that money towards your loan.
• If you make biweekly payments instead of monthly payments, you will wind up making an extra payment per year, which can help you get out of debt faster.
One option, if you currently have a loan that comes with prepayment fees or penalties, is to consider looking for an alternative lender. While you’re at it, maybe you can find a loan with a lower rate and better terms. In other words, you would refinance your loan.
If your current personal loan has prepayment penalties, check out our personal loan payment calculator to see if you might benefit from making a switch.
💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
Rethinking Your Debts
One of the biggest challenges that comes with exceeding your minimum loan payment is budgeting that extra money to pay toward your loan. Once you’ve decided that this is your goal, take the time to review your finances and look at your overall debt. If you are carrying a few loans with different rates and terms, it could be time to reevaluate them.
Think of this as an opportunity to simplify and align all of your debt and optimize your monthly payments. If you’re trying to consolidate credit card debt, a personal loan might be the right solution. Ideally, you would be looking for a personal loan with a low-interest rate and reasonable repayment terms. Before you commit to a new loan, it’s a good idea to consider the agreement in its entirety, including fees, penalties, and terms.
In addition, you may want to review a few of the different budgeting methods available. You may want to look for ways to unlock more funds to put towards debt repayment and speed up your repayment schedule.
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Your Long-Term Financial Strategy
While debt consolidation is one piece of the puzzle, your long-term financial strategy could also include bigger goals like saving for retirement or perhaps buying a home.
It’s also a good idea to put extra money aside in an emergency fund for unexpected expenses.
As your earning power increases, it can be wise to avoid lifestyle creep. Instead, you can pay more than the minimum on your debt and start to move closer to debt freedom. In turn, this may allow you to then reallocate funds to other areas of your financial life, such as financing your child’s education or saving for retirement. And just like that, you could be on your way to building the financial life you truly want.
Recommended: Can You Refinance a Personal Loan?
The Takeaway
Paying off a personal loan more quickly can have a positive impact on your financial situation. You can potentially do this by putting a lump sum toward your loan, paying biweekly instead of monthly, or paying more than your minimum due. Just check to find out if your loan has prepayment fees. Another option could be to refinance your loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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