If you have recently applied for a personal loan through an online lender, you could feel anxious about being in debt to somebody else. Many folks despise owing money to another person or corporation, especially when they are having to pay something off every month. What if you could alleviate that pressure hanging over your head by simply paying it all off early?
Well, this is an option that you could explore if you would like to consider it. Being in a position where you are able to pay off your debts is an empowering feeling that lets you lose a little stress from your life, and seeing one less creditor on your credit report is a feeling worth paying everything off.
You want to do everything you can to make sure your loan is paid off on time and have one less debt under your belt. So, will paying a personal loan off early help you any, in comparison to paying it off over time? Let’s take a look at what you need to know to pay personal loan in advance, hopefully taking a little stress out of your life.
Can Paying Your Loan off Early Help Your Credit?
Many people hope that by paying their online loan off early will help their credit scores, and it is possible that it might, depending on the lender and the loan you took out. The first thing you will need to think about when it comes to this scenario is whether or not your chosen online lender reports to the big three credit reporting bureaus, which are TransUnion, Equifax, and Experian.
If your chosen lender does report to these agencies, then it is possible that you could notice a little increase in your credit report the next time you take a look at it. While it won’t make quite as much of a difference as successfully paying off a credit card, you could still notice a jump in your score from it. Unfortunately, if you chose a lender that doesn’t report to the credit agencies, you won’t enjoy many benefits in this respect.
Think About Possible Penalties
Believe it or not, there are actually fees that are often associated with paying your loan off early. Called prepayment penalties by the lending industry, this can often actually harm your credit, rather than help it. If you are working on building up your credit score, it would actually be more prudent to pay your loan off in the normal installments, as this shows several consistent payments over time on your credit report.
Think About the Money You Have Available
Before you think about paying off all of your loan in one go, think about the amount of money you actually have available to you right now. If paying off your loan would put you at another economic disadvantage, don’t worry about paying it all off at once. You don’t want to risk your livelihood simply to get a loan paid off, so make sure you have enough money on hand if you do want to go ahead and pay your entire loan off at once.
If you have the extra funds in your savings and know you can swing it effectively, you can go ahead and pay off your loan if you would like. If nothing else, paying it all of early if you can afford it could save you on some of the interest fees.
Personal Loans and Your Credit
Remember that at the end of the day, you should be doing everything in your power to work on making your credit situation better. If you can bring your credit score up, you will be able to unlock perks such as the ability to get larger loans through banks and local lenders, as well as have more opportunities when it comes to establishing lines of credit.
While not every lender will report to the credit bureaus, you should keep in mind that some lenders will run a hard inquiry on your credit when you apply for a loan. These can cause a temporary, and small, decline in your credit score.
Should You Pay off Early?
At the end of the day, this is a decision that is very personal to you and your specific situation. If you want to get out from interest rates or just want to have everything paid off, you certainly have the ability to pay your loan off early if you’d like. If, on the other hand, you want to work on your credit and your lender reports to the bureaus, you can continue to pay it off so those payments reflect on your report.
Whatever you decide, make sure you keep a close eye on your credit score, and keep on making improvements and bringing it up where you can. This will only work to serve you later in life.