Do you know we can save plenty of money by pay off loan early?
Before I discuss with you why we need to Pay off Loan early and what are different ways by which we can achieve it, Take a look at Data below:
Source image: ICICI Home Loan calculator
What you figure out with the above picture? Above is Loan of 20 Lacks for 20 years.
Well to me, I am paying back double amount to my lender or bank, which hurts right?
So it is always good to become debt free as soon as possible and pay off loan early weather is it Car loan or Home loan.
You can also use any online pay of a loan calculator, just to plan of your balance debt.
We do have some financial goals and it is always better to do some justice with it.
There are some ways I have used personally to pay off loan early than the scheduled tenure and it feels really amazing to be a debt free, isn’t it?
9 Amazing Ways to Pay off Loan Early
1.An Extra Payment with Regular Monthly Payment
Try to do some extra payment in addition to your fix monthly payment. Whatever be the amount make sure you are continuously trying to reduce your loan amount.
I have always done some extra payment for my Car Loan whatever is left after my monthly budget.
In that way when we see in long run, we are reducing 6 months to a Year on our loan tenure.
2.Pay Off Loan With Little Magical Extra Payments
There was a time when I made an extra payment as low as 500 bucks apart from regular monthly payment. Whatever little extra amount I find with myself I used to pay off loan for my Car.
We know it is not a big amount that makes a big difference but think about 500 bucks for 12 month, you got it right?
This is going to reduce one month at least from your loan tenure.
3.One Extra Large Payment
You can do little extra payments or do a large at one time. It all depends on your financial situation and goals. Both of the cases will help us to pay off loan early.
People having bonuses, incentives and team rewards every year in their working areas. You can use that large amount for your extra loan payments apart from your regular monthly payments.
4.Increase Your Payment With Time
We get some appraisal or hike in our salary each year. See if it is possible to add the extra salary to regular loan payments.
This will reduce loan tenure automatically by paying off more than your previous pay offs.
5.Refinance or Balance Loan Transfer
Why not? If other bank is offering you lower interest rates it is wise to transfer your balance.
This is actually one of best way to save money on interest and pay off loan early.
6.Not to Reduce EMI On Your Extra Payments
If you do any large extra payment, Bank may give you two options. Lower your tenure or reduce EMI.
Best way is to go for reduce tenure, in this way you can pay off loan early than actually it was scheduled.
7.Open RD Account For A Large Extra Payment
This was one of my little favorite trick. You can try it if you have set a target for pay off your loan early at some planned time in future, say after 2 years or 3 years or less.
I opened an RD account with installment of Rs5000 for one year. You can go for 2 year or more depending on your planning.
After maturity I was able to pay an extra-large payment of almost Rs 64,000.
Consider any under-performing investment having lower interest rates that of you loan and not having a better scope as well, better liquidate it and pay an extra payment for your loan balance.
If you already having any investment ( also includes short RD,FD etc..) which is near to maturity and you do not have any further plan to roll that amount into another investment, then do an extra-large payment with that amount after maturity and pay off loan early.
CALL TO ACTION!
It feels amazing to be debt free. After finishing your loan early, you can try to concentrate on other investments or save money for future use.
After all it is your WiseMoney.
What are your best ways to pay off loan early? Comment and let me know.