Is it Worth Repaying a Loan Early?

Many of us have loans and some people feel that it is a good idea to repay a loan early. There are pros and cons to doing this and it is worth investigating these before you decide whether paying the loan back early is the right decision for you.


The main reason that many people will repay a loan early is because of the cost. The cost of a loan will normally be higher the longer you have it for. This is because loans have interest charged on them and this is usually calculated monthly or daily. So, the longer you have the loan, the more interest will be adding up. So, if you repay it early, you will be charged less interest and the loan will be cheaper.

It is important to be wary though. There are some loans which charge you if you repay them early. Find out if this is the case with the loans that you have and work out whether you can still save money if you repay them early. It will very much depend on how much it costs and how long it is until you repay the loan anyway. You might be best to telephone the lender and ask them to do the calculations for you as to how much interest you will pay for the remaining time that the loan lasts and how that compares to the fee they charge for early repayment. Not all loans have a fee for this though, so it may not always be relevant.

Reduce Monthly Outgoings

Finding the money to repay the loan each month can sometimes be difficult. It means that you are paying out more money each month than you would be if you did not have the loan. If the loan is repaid, then there will no longer be this repayment to have to think about and this could be a big relief for some. Without having to make the repayment you will have money left for other things or you will find it easier to pay for all of the things that you need. Obviously you will need to consider how you are going to find that extra money to repay the loan, but hopefully you will be able to and you will eventually be able to repay it.


Some people find having a loan stressful. This is not the case for everyone and as loans can be useful there is not really any need to feel like this. However, for some people having the loan repaid will help them to feel more relaxed. Some people just do not like owing money, some find coming up with the repayment each month stressful and others find that having less money is difficult for them. By not having the loan, that stress with disappear and this should help you to feel better.

Credit Score

If you owe money then it can have an impact on your credit score. Although making regular payments can be good, as it shows that you are capable of repaying a loan, having too many loans will put off some lenders as it could indicate that you will have less money available to repay. If you repay a loan early, this will show that you can be trusted with money and could have a positive impact on future lenders and anyone else that is looking at your credit score.

Of course, you will need to find the money to be able to repay your loan early. This may not be too easy or it may take you a long time to get together enough to be able to repay your loan. However, even if you only repay a small amount it will all add up. The more that you can pay off the loan, the less interest you will be charged. Even if you can only pay off small amounts, they will reduce the interest you are paying, which will give you more money to be able to pay off some more. You should be able to gradually increase the amount of money that you are repaying so that you will eventually be able to pay off the whole of the loan. It should get easier as you go along which should help you to stay motivated as well.

Some people will feel more strongly about repaying the loan than others. Some may feel they are happy repaying at the rate that they are and do not feel concerned about it. This is fine and you should not feel pressure to repay if you do not want to but if you do want to repay, it is possible but worth investigating first to make sure that it will be cost effective for you and that it will suit you.