Is it Worth Paying a Loan Back Early?

These days there are many people that say we should not be in debt and that we should even try to pay off our debts early so that we can get out of debt more quickly. However, there are circumstances when it is not advisable to pay back a loan early, as well as ones when it is advisable. Therefore you should do some calculations and give some thought to the situation before rushing to pay back all of your loans early.

Calculate the costs

Do not be put off by the fact that in order to work out if it is worth paying your loan back, you will have to do some calculations as they are really simple. You need to work out how much the loan will cost you in interest and fees until it is paid off. You should get a statement regularly from your lender and it will tell you what the interest, fees and charges are. Therefore you know how much it is costing you. You just have to know how much longer you will have the loan for and then multiply that by the cost, it can be best to work this out in months. Find out the monthly cost and then multiply this figure by the number of months remaining on the loan and this should give you and approximate cost of the loan.

If you are not sure of how long you have left, how much the loan costs or how to do the maths, then get in touch with your lender. Ask them how much the loan will cost you until it is paid off and they will be able to calculate it for you and let you know. It could be useful in either case to contact them anyway as they will be able to tell you whether there is an early redemption fee. This is a fee that some lenders charge for repaying a loan early. It is there to stop you switching to another lender or saving money be repaying the loan early. Some lenders do not have these but some do and it is well worth checking. You will need to know how much it is to see whether it is worth paying the loan off early. You will need to compare this fee with the savings that you have calculated will be made from repaying the loan early. Then you will need to compare them to see whether the savings are high enough to make that fee worth it or not. The fee may just be a nominal admin fee and very low compared with the savings that you will make. However, sometimes the fee can be really big and you will end up paying more, by having to pay this fee than you would pay in interest if you kept the loans as it was.

Consider the stress

Some people find a loan really stressful and this is something which you should consider as well as the cost when thinking about paying it off early. If you are worrying about the loan a lot, then it could be that paying extra money just to get rid of it, could be well worth it. Only you will know how much stress it is giving you and whether you will be happy to pay this extra money to be rid of it. You know how much it costs you and what an effect it is having on your life. You might be prepared to pay a few hundreds to get rid of it a few thousands or even more. It will obviously depend on how much you can afford to pay as well as how much you are prepared to pay.

Being out of debt can bring a massive feeling of relief and freedom. Being in debt can make you feel suffocated and restricted. It is worth thinking about whether changing the way that you feel from suffocated to relieved is worth paying that much money for. Only you will know whether you think it is worth it or not.

Can you afford to repay early?

It is good to also think about whether you can afford to repay the loan early. You may have some savings which you can use, which would be ideal, but you may not have that much spare money. It could be wise therefore to think about how you are going to manage it. If you can, you may be able to pay a bit extra each month off the loan and then you will be able to slowly whittle away the debt. This could be easier as you will spread the cost and pay a little extra each month.

It is worth thinking about how you will manage all of your other expenses if you do pay extra off of the loan. You may be able to spend less money elsewhere, put less in your savings account or earn more somehow so that you can afford the extra to repay. Think through how well you normally afford everything that you need to buy and consider whether you will be able to repay extra without making any changes. It may be that you can easily cut back in a few areas and have some extra money. However, you may find that you need to work harder and cut back quite significantly. You will also have to stay aware of your spending all of the time to make sure that you do not spend too much.


So there are a lot of factors which will determine whether you should repay your loan early. You need to work out whether it will be cheaper to do so and if so how you will afford to make those extra repayments. Then if you find that it is not cheaper to repay it early then you need to consider whether you can cope with continuing with the loan or whether you do want to repay it anyway even if it is dearer because it is causing you too much stress.

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