WANT TO PAY OFF DEBT BEFORE THE DUE DATE? WHAT STEPS TO TAKE?
You have got a windfall or inherited a lot of cash. Why not make the most of this opportunity? Rarely is a chance when luck is on your side. If you have taken on debt, you may decide to utilize this money to settle it.
A lender will impose early repayment fees on you if you settle the debt before the due date, partially or wholly. Although you have a chance to stow money away to be used for the debt payment when it is due, you have foreboding that you will end up dipping into it to make a frivolous purchase.
Not until you save some money in interest is early repayment recommended.
A lender does charge early repayment fees so as to mitigate the loss in the form of interest they would not put up with if you paid on the due date. Financial experts suggest doing thorough calculations to see if it actually helps save some money. Do not forget to include opportunity cost.
Keep your lender in the loop
Lenders do not like hidden surprises, whether you make a default or repay before the due date. If you have done thorough homework and arrived at a conclusion that it is a good deal, you should immediately talk to your lender.
Make sure that the due date is ahead of a couple of days, so a lender can let you know whether or not it is possible, and if so, how much money you will end up paying on top of what you are to pay off.
Let your lender know whether you want to settle the debt in full or partial. Your lender will tell you how much you have to pay, which will be the early settlement figure.
It is likely that you will find that the total amount you are to pay is not worth saving money. You may be keen on sticking with the current payment schedules in this situation. Because you have asked for early settlement, it does not mean that you cannot opt out of it.
If you wish, you can drop the idea of early settlement and continue with the current payment method.
You will be able to save more money when you pay off the loan in full, but sometimes your budget allows for the early settlement of a part of a loan. Let your lender know how much money you want to pay off.
In both cases, you must make the payment within 28 days.
Gauge the opportunity cost
If you have a sum of enough money to settle your debt before the due date, you cannot just jump the gun. Compare the benefits you gain against the opportunity cost you are to bear. If the benefits outweigh the opportunity cost, go ahead. Otherwise, you will get off the track.
For instance, if you are to buy a gadget for your house, you should check if you will be able to buy it soon after repaying the debt before the scheduled date. If you are sure that you can keep up with payments following the current repayment plan and buy the gadget outright with the surplus, you should drop the idea of early settlement.
Financial experts suggest you clear your dues only if you save money in interest and your opportunity cost is very little or almost nil. You might assume that you could make a point of building a budget from scratch, but life often throws a curveball.
You may be caught unawares by unforeseen expenses. If you avoid dipping into those savings, you will likely have to take out a 1,000-pound loan from a direct lender. Not only will you pay additional money, but your savings will also suffer.
Therefore, it makes sense to use the surplus for anything other than early debt settlement if you are sure that you will lose control over your finances.
What if you have outstanding dues?
In another scenario, you took on debts and now missed some payments. It is conspicuous that you will use the surplus to clear outstanding dues as soon as possible.
Even if you have to buy a gadget or use the money for any other purposes, debt should be the priority. Put off your purchase and build a budget from scratch for that. If possible, you can repay the rest of the amount you are to pay in the coming months.
As you have already made a default, it is clearly understood that you are struggling to keep up with payments. Chances are you will miss other payments as well. To avoid falling into debt, you should settle the whole of the debt at once.
This may not be able to save money in interest as you have already made defaults, but you will more than likely keep yourself from falling into debt.
Only if you have an instalment loan will you be able to settle the debt early.
If you have taken out a small loan like doorstep money loans with no credit check, payday loans, or small bad credit loans, you cannot pay them off before the due date.
These loans are small emergency loans that have a very short repayment length – up to 14 days or 28 days. You will be required to pay off the debt in a lump sum. Even though a lender has asked you to pay down the debt in weekly instalments, early settlement is not permitted.
Under no circumstances will you be able to settle these debts before the due date.
The final word
If you want to settle your debt before the due date, you should ensure that it helps you save a lot of money in interest. However, do not forget to compare the benefit against the opportunity cost. If you have already fallen behind payments, you have no other way than early settlement. Inform your lender about your decision to know how much it would cost.
Ailsa Adam is the Editor-in-Chief and former content head at Hugeloanlender. She has been a valuable member of the content strategy team since 2017 due to her abundant experience in the finance sector. Passionate about helping individuals navigate the world of loans and personal finance, she has dedicated herself to acquiring extensive knowledge on various financial products. Before her role at Hugeloanlender,
Ailsa worked as a seasoned journalist and writer, specialising in creating informative blogs and articles on diverse loan types. She is known for her meticulous research and commitment to delivering accurate and engaging content. She holds a degree in MBA Finance and has a keen interest in creative writing and art.
