4 Ways to Pay Off Any Loan Faster
Pay off a loan faster, and it will cost you less in interest – but especially when times are tough, how can you go about doing this?
We offer some simple strategies for paying off any type of loan, from credit card debt to a small bank loan, car loan or asset-based loan.
First, check for early termination fees
Some types of loan providers will penalise you for paying off a loan sooner than the agreed term.
For example, many vehicle finance companies impose an early termination fee, usually equivalent to three to four month’s interest.
In a case like this, you’ll need to calculate whether the interest you’ll save by paying off your loan early adds up to more than the early termination fee.
If it does, it makes sense to go ahead with your shortened repayment plan. Otherwise, put your extra funds to good use in paying off other debts, or invest them wisely to get a good return.
At Pawn My Car, there’s no need to worry about early termination fees. We don’t penalise customers for settling their loans early.
Ways to pay off loans faster
After accounting for any early termination fees, these methods may help you pay off loans faster.
1. Make split payments
Instead of making one monthly repayment, split your loan contribution in half and pay it into your loan account every two weeks. At the end of the year, you’ll have made one extra month’s repayment.
Implement this simple strategy for the duration of a loan, and you’ll pay less interest over a shorter term.
2. Round up your monthly payment
Contribute a round monthly figure to your loan account. If the calculated repayment is R5 575 per month, for example, pay in R6 000. An additional R425 a month equates to R5 100 per year.
3. Pay in extra cash
Aim to use any cash windfalls, such as bonuses or tax refunds, towards paying off your debt. The interest you’ll earn on the money in a fixed deposit savings account, or money market account, will generally be lower than the interest you pay on credit card, car loan or other types of debts.
For example, depending on your provider, you’ll pay around 13.5% interest on a car loan in South Africa, in contrast to the average interest rate of just 6% to 7% that you’ll earn in a money market account.
Consider a home loan of R500 000 at an interest rate of 10.5% over 30 years. Paying just an extra R100 per month would translate to four years less of instalments to pay! R1000 more per month, and you’d be able to pay off the loan in full in 15 years, instead of 30.
4. Refinance a loan
In certain conditions, you can save money by using one loan to pay off another loan. Typically this involves using a low-interest loan such as a home loan to pay off a loan with higher interest.
However, doing this right takes care (and careful calculations). See here for an explanation of when it is and isn’t a good idea to use a home loan to pay off something like a car loan.
With Pawn My Car, you can use a car that’s in your name to secure a loan quickly and easily, with no delays or credit checks. We also allow customers to settle loans early – and there are no early settlement penalties.