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Benefits of early loan repayment

21 May 2019 13:20|

When taking out an online loan, we declare when we want to repay it. However, if we have funds to do this, we can do it earlier. Will it be lucrative for us? What costs do we possibly have to take into account?

Each loan contract is concluded on a specific term, which we set at the moment of submitting the loan application. The time for which a loan is granted is one of the elements determining its final cost. In the case of fast online loans, it usually takes several dozen days. The money can be borrowed this way, for instance, for 14 or 30 days.

This is the time that we have to clear all our arrears to the lender. However, there are no obstacles to returning the money early.

A loan repayment before its due date is usually free of charge. On the contrary, it can reduce the final cost. Therefore, such a solution has many advantages.

Early loan repayment results in lower fees

Fees related to a loan are calculated and accepted when the application for a loan is made and covers the entire period of the loan. However, if you decide to repay early, the lender should refund some of your costs. In the case of full and early repayment of a loan, its cost shall be reduced by the part relating to the term by which the contract concluded with the lender is reduced.

Therefore, the final cost of the online loan should be lower; however, it should be remembered that the preparation fee or commission may not be refunded, as the lenders charge it for concluding the contract and granting the loan.

The rest of the costs can be refunded in two ways and lenders have different approaches. In the first case, we repay the entire loan, and then the lender gives us a part of the amount due. In the second case, the final amount of the repayment is immediately calculated, minus some of the fees.

After deciding to repay your loan early, it is worth checking the contractual terms or simply contact the customer care of the loan company. This will ensure that we can establish all the details related to the early repayment. We will also find out how much can be saved by giving your money back before the term.

An additional advantage of early repayment is also the certainty that the money will be returned on time. If we leave everything to the last minute, we can expect a situation in which the funds will be credited late, and we will pay additional fees. This situation can be avoided by returning the money early.

Choosing to repay the loan before its due date also helps to increase creditworthiness. We build a reliable image, thanks to which the lender can grant us another loan in a higher amount and on better terms.

Does early loan repayment have any drawbacks?

Early repayment is an excellent way to release ourselves from liabilities. However, before settling the debt, it is worth considering whether this extra money will be needed soon.

If you are expecting that additional expenses may occur in your budget before the final date for payment of the loan, you may want to withhold early repayment. It should not take away from us the so-called financial cushion or financial security against unintended expenses.

21 May 2019 13:20|

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