How best to pay off a loan early?

L33N4

I have taken out a loan for 3 years but I’m looking to clear this off in about 12 months in order to pay less interest on this. Is the best way to save the money aside each month until I have the balance to clear this or make extra payments each month on the loan? I have the option on my account to see the early repayment settlement figure so I know the actual balance in x months. 

AdrianC

Pay as quickly as you can, because then you're paying less interest because you're borrowing less money for less time.

L33N4

Thanks for your response Adrian. Just to clarify please, do you mean i should make extra payments each month to the loan instead of putting aside and building up to pay say in 12 months time?

Slithery

Try asking on the Loans board, this one is for buying and selling property...

greatcrested

As Adrian says, the earlier a payment is made, the less interest is charged. But you may need to read the terms of the loan as they can vary from loan to loan.

panik27

Depends on the value and the monthly payments.
What I did for mine;
1. One loan paid additional amount every 2 weeks (basically set myself a budget and anything I saved I'd stick into mid-month - bigger balances early on dramatically reduce interest)
2. Can you get a balance transfer (if you can put an initial lump sum now with only a 0-3% fee - how would that look and how much interest would you save?). This is just redistributing but if you can lower your interest commitments it's better. Might take a credit file hit but meh. I'd take savings over a few points on a file personally
3. If it's a super low interest loan - (i.e. my car was about 2.5% on the loan) - so I stockpiled the money in cash. Get a settlement quote 30 days before u intend to pay and they should honour it - saving a little bit of interest at the end
Hope it all goes well

AdrianC

L33N4 said:

Thanks for your response Adrian. Just to clarify please, do you mean i should make extra payments each month to the loan instead of putting aside and building up to pay say in 12 months time?

If you save up, say, £1000 - and keep it in your account for 11 months, then you're getting 11 months-worth of a low rate of taxable interest on it. But you're paying 11 months-worth of a high rate of interest on the money you still owe them.

I'm not sure what else there is to this.

martindow

I think some lenders only credit overpayments at specific intervals.  If this is the case then the saving may not be immediate.

theselfishaltruist

Hi, check your contract as you may need to pay a charge, bear in mind lenders make money from interest so its not in their interests to let everyone pay off early
https://www.comparethemarket.com/loans/content/can-i-repay-loan-debt-early/