Are your debts adding up? You’re not alone!
In 2021, the average personal loan balance increased by 3.7%. Currently, the average balance for those with personal loans is $17,064.
Still, you may need help paying for things, especially around the holidays. And this may cause you to take out a small loan.
When it comes to paying debts off, though, are you better off focusing on small loans or larger ones? Keep reading to discover the surprising benefits of paying off your small loan early!
One reason that many people hesitate to pay their small loan off early is that they are worried about having to pay a penalty. The last thing a borrower wants to do is get new debt for paying off old debt!
Here’s some good news, though. In most cases, there is no penalty for paying small loans off sooner rather than later. So if you have the spare cash and nothing you need it for, you may be better off paying off that lingering small loan balance.
As with any personal loan, we recommend you check the fine print to see if there are any early payment penalties. If not, then it’s time to show that loan balance who’s boss!
Borrowing money is always a delicate game when you are worried about your credit score. On the one hand, you can’t pay for some of the things you really need without taking out a personal loan. On the other hand, taking out too many loans can bring down your credit score in a big way.
If you’re worried about your own credit score, you may be excited to hear that paying a small loan early can help improve it. We say “may” because if you have many debts, paying it off can reduce your debt-to-income ratio and boost your credit.
On the other hand, so long as you make all of your payments on time, keeping a small loan active can help you to build your credit up. So long as you have a decent credit score, though, then paying off your small loan early can help to both improve it and protect it.
Ask yourself: why did you take a loan out in the first place? For most people, the answer is simple: they needed money, and they didn’t have it. However, once the interest adds up, a small loan may end up becoming a drag on your bank account instead.
The biggest benefit to paying your loan off early, then, is that it can help you to save money. That’s because every dollar in interest that you end up not having to pay is a dollar saved.
When you have more money on hand, it reduces the chance you’ll need to take out another loan. And once you have more money available, it gives you more options to improve your overall finances.
As we said at the beginning, your small loan balance may be just one of many loan balances you have to deal with. Because of this, paying off one smaller balance may not be such a big deal. It’s just one drop in a fairly big bucket…right?
Wrong! If you have many different loans, then you may end up making smaller payments on them. You may even make only the minimum payments, and thanks to high interest rates, this may barely make a dent in your debt.
But if you go ahead and pay off that small balance, you have that much more money you can use to spend on other loans. Focus on paying one loan off at a time to strengthen your overall financial position.
Most people take out small loans because of unexpected expenses. For example, the average American cannot afford a $400 emergency expense. And most of them blame their current debts for their inability to handle financial emergencies.
When you pay a small loan off early, you don’t have to spend the money you save only on other debts. You may also wish to put some of the money you have saved aside each month to help build up your own emergency fund.
There is no magic “right amount” when it comes to your emergency fund. But the more you save, the more you will be able to handle everything from a car breaking down to the sudden loss of your job!
Earlier, we discussed how paying a loan off early can help you save money. But did you know it can also help you save time?
Every loan that you have uses some of your precious time up each month. This includes time checking the balance, visiting the website, and making a monthly payment on your online loan.
That may not sound like a lot of time, but it really adds up. If you go ahead and pay a smaller loan off now, it could save you many hours in the next few months. And those are hours you can devote to doing something much more fun than paying bills.
The final benefit of paying your small loan off early is quite simple. It gives you the peace of mind that you’ve been looking for!
If you’re not careful, it’s easy to agonize over your different loan debts. You may worry about your ability to pay them off, how they are affecting your credit, and how much extra you are paying in interest.
You don’t have to worry about any of that after you pay your debt off. And this provides the kind of peace of mind that money just can’t pay for.
Now you know the benefits of paying a small loan off early. But do you know where you can get the best rates and service when you need to borrow money?
Here at Fast Loan Direct, we make borrowing money as easy as clicking a button. To get the money you need at the rates you deserve, come and request a quote today!