How to Save Money Paying Off a Personal Loan
Aug 30, 2022
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A personal loan can help you cover the cost of a car repair, medical bill, home improvement project, and many other things. If you take one out, you’ll receive a lump sum of money upfront and repay what you borrow over an agreed upon term. While a personal loan will likely come with interest and fees, a loan payment calculator will give you a sense of how much you will pay each month, and these tips can help you save money over the course of your loan.1. Refinance
Personal loan rates vary greatly from lender to lender. The rate you receive is based on a number of factors, such as your credit score, loan amount, and repayment term. If you refinance your current personal loan, you might be able to lock in a lower interest rate.
A lower rate may lead to substantial savings over time. Note that if your credit score has improved since you first took out your loan, your chances of getting approved for refinancing at a lower rate are better. But be aware of origination fees charged by a refinance lender and extending the term, which could increase the cost of the debt.
2. Apply Cash Windfalls Toward the Balance
Cash windfalls are large, sometimes unexpected sums of money. If you receive a cash windfall like a tax refund, bonus, or inheritance, put some or all of it toward your loan balance. This way you’ll pay off your personal loan faster and save money on interest. If you do repay your loan early, make sure you’re aware of any prepayment penalty your lender might charge.
3. Make Extra Payments Toward Your Loan
While your loan agreement may require you to make monthly payments, you can choose to make an extra payment on top of your regular payment whenever you can. If you earn more or spend less than usual, extra payments will help you save money on your personal loan. The amount of money you’ll save will depend on when you make your additional payments and how large or small they are. Your lender or servicer may also offer a recurring payment option that allows you to specific an extra amount to be withdrawn each month.
Don’t Compromise Your Financial Health
Ideally, you’d save as much money as possible on a personal loan. However, sometimes, it’s not possible or makes more sense to focus on other financial goals. If you have to pull from your emergency fund or retirement savings, putting extra payments toward your loan may not be the best option.
However, if you’re able to land a lower interest rate through refinancing or have extra money to apply toward your balance without compromising your finances, saving money on a personal loan is certainly realistic and worthwhile.
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