If for some reason you have accumulated a larger sum, this is an alternative for you who have a private loan to solve this prematurely. Here we will cover some things that you should consider before making a decision to do so.
Is it possible to repay prematurely?
This is, of course, the first question to be answered. A good thing for those who are thinking about solving a private loan early is that there should be no problems at all in doing so. Furthermore, it usually costs nothing at all to settle a loan early.
Thus, the loan itself is not an obstacle at all. If, for example, it were instead the question of a mortgage bond, it would have been another matter. Then you would probably have been paid something called interest rate compensation if you wanted to settle the loan.
Should you redeem a private loan early?
If you repay your loan before it is scheduled, you will save money so it is usually a good idea to repay your loan as quickly as you can. So when it comes to private loans, the question is whether it is good to do it or not. It is more about whether you should prioritize this or not.
To complicate it a little more, interest rates are often very different on private loans. The smaller ones often have a high interest rate and these are therefore more interesting to solve early. Credit card debt or other smaller credits are also interesting to get rid of.
What you should therefore do is go through all your debts and then list them by how much interest and other possible costs they have. Then use your saved money to pay your most expensive first. If it turns out that it is your private loans that are the most expensive you have then you will of course repay them.
For example, if you borrow USD 100,000 in 5 years but get money to repay the loan after 1 year, it is not unreasonable for you to save as much as USD 10,000 in lower interest costs. It may well be that you will save more than that.
Considerations When Thinking About Loaning Loans
When you have money left over in your finances that you can spend on, for example, solving a loan, it is always a question of what you earn the most from. You can use the money for various things, for example to invest or pay off existing loans. What you should do is to figure out if you think you are earning more from paying off your loans than investing your money, for example.
The idea here is that if you redeem a loan early, you save money on interest that you would otherwise have had to pay. If you invest money in shares, for example, you will get a return on them (hopefully). If the return you expect to get is greater than the money you would save on the interest rate then it may not be worth settling the loan.
What you should know is that if you redeem a loan, it is always a safe deposit, while an investment in eg shares does not at all certainly have the return you expect. It can even be so bad that you lose money. Thus, paying off all or part of a loan is a secure card that is never bad.
Pay back parts of the loan
There is nothing that says you have to settle the whole loan at once. Maybe you have a loan of USD 50,000 but only saved up USD 25,000 which you can use for repayments. If you then take and repay this extra, you will not get rid of the entire loan, but your monthly costs in the form of interest, etc. will decrease properly.
How to settle a loan?
It can be as simple as just paying a little more than you have to pay a month to the lender. Or maybe they want you to deposit the money in something special. Regardless, it is usually easy to pay off more on their private loans. But our tip is that you contact your lender and simply ask them how to deposit the money. You will then receive a secure answer that it is then only to follow.