Should I pay off my loan early?

arc2014

Hi all,


I've started looking forward to next year in terms of debt repayments, and I know I want to pay off my outstanding balances with DCAs first. My question is; Is it beneficial to pay off my personal loan early?


I have a terrible credit record at the minute, but hoping some of my negative markers will be removed. However if they aren't (or if it doesn't improve my record a great deal) would it be more beneficial for me to continue to make my regular payments on the loan to build my credit file, and therefore show responsible money management?


The loan is a guarantor loan so has an extremely high interest rate (49.9% :eek: ), however repayments are very low compared to my income - is it worth saving the money and paying off early, or would I significantly improve my credit file with regular payments on the one loan?


Not sure what to do for the best - ideally go back a year and never take the loan out :rotfl: but since I don't have a time machine, I'm stuck between a rock and a hard place and need some external input!


Thanks!

[Deleted User]

If you can clear a debt which has a higher rate than your savings, then clear it.

If you're looking to build credit history, there are easier and cheaper ways of doing it.

EssexHebridean

Read the small print - Loans are a funny one. Sometimes there is a term in there which means you will get charged a penalty clause of paying off early so just check that doesn't apply to yours.

Assuming that you can overpay/pay off early also check whether the interest on your loan was front loaded - ie all added to the balance at the start - or whether it goes on daily or monthly. If the former, open the best savings account you can and stash money away to pay off in a lump sum as and when you have enough. If the latter, pay off whatever you can whenever you can - particularly in the light of how high that interest rate is!

Ignore your credit file at the moment - unless you're looking to take further credit then it's not relevant. Concentrate all your energy instead on paying off debt and learning to budget/manage your money. Once the debnt is cleared then make a decent emergency fuind your priority - although even at the moment you should have at least a basic EF pot - £500 if renting, £1000 if you're a homeowner.

arc2014

I definitely can overpay, I just have to inform them when/how much I will be paying in advance.


I never knew about front loading interest, I'll have to check. I assumed (possibly wrongly!) that interest was added daily/monthly and any overpayments I make would reduce the interest.


I suppose I'm not looking to take further credit in the near future (we're talking years rather than months), so the decent credit file is a long term goal.


We currently have a £400 EF (building back up after moving) and renting. But this will definitely be a priority in the new year!


Thanks for the advice.

[Deleted User]

The interest won't be front loaded. That was outlawed many years ago.

Pay it off.

arc2014

Deleted_User wrote: »

The interest won't be front loaded. That was outlawed many years ago.

Pay it off.

You're right it isn't! Thanks.

EssexHebridean

Deleted_User wrote: »

The interest won't be front loaded. That was outlawed many years ago.

Pay it off.

Thanks for that - I'd not realised it had been outlawed entirely now! It's 10 years since I last took a loan!