4 Tips to Keep In Mind Before You Repay Your Loan Early

When you’re approaching the end of a small personal loan, and you have extra cash to spare, it can be tempting to repay it early and put an end to your obligation. You’re finally a few months away from the sweet feeling of being debt-free that you can almost taste it. The sooner you zero out your debts, the better, right?

Unfortunately, many loans come with prepayment penalties, which means you may be spending more by paying off the rest of your personal loan right away. It’s also essential to determine if ending your personal loan early aligns with your financial goals. Here are four tips to keep in mind before you dip into your savings or use that extra influx of money to pay your loan:

Pay Off Your Monthly Expenses First

Your monthly expenses, consisting of rent, groceries, utilities, and other necessities, are fixed payments for items and services you need to survive. You’ll also have other debts like credit cards or student loans that you can’t forget about, either. If you skip any of these payments, it may quickly snowball into a bad habit that can plunge you into deeper debt. Before you think about paying off your small personal loans, make sure you have enough funds to settle your monthly expenses first.

Set Aside Savings

When you receive a sudden windfall of cash, the thought of using it to repay your loan is too good to resist. However, you might want to funnel that money into your savings instead. Having a safety net can cushion you from surprise but necessary expenses that may come up. Fattening your savings account will protect you from devastating scenarios like losing your job, medical emergencies, or urgent home repairs.

While it is acceptable to take a small amount from your savings to make a personal loan payment in the last few months of the term, make sure to avoid taking too much or too often. It’s best to have three to six months’ expenses in your emergency savings account to ensure you have the funds you need for these urgent situations.

Check For Any Prepayment Fees

Some lenders charge a fee for repaying your small personal loan early, called the prepayment fee. These fees are in place to ensure that the lender continues profiting from your loan, especially when you want to save on interest by paying your loan in full before the term ends.

If your loan has a prepayment fee attached to it, calculate if the cost cancels out any potential savings you’ll make by paying the loan early. If you have a handful of payments left and the fee is thousands of dollars, it’s best to wait until the end of your loan’s term and put that extra money elsewhere.

Don’t Dip Into Your Retirement Fund to Repay Debt

When you’re only a few months away from fully paying off your small personal loan, you may be tempted to take a small amount or two from your retirement account. If the account’s rate of return is higher than your loan’s annual percentage rate, you can think about splitting the payment between these accounts.

Still, you’ll want to pay your high-interest debt before allocating your extra cash to your debt payments and investments. Your loan won’t give you any money back, so be sure to prioritize your monthly retirement contributions over making extra payments to finish your loan.


Few things feel better than becoming debt-free, and when you’re only months away from it, paying it all off in one fell swoop is almost too good to resist. However, it’s essential to consider these tips before paying off your loan early to make sure you maximize your savings.

Mid-Town Loans offers small personal loans and ,installment loans in Decherd, TN. We understand the urgency of needing to take a loan when you’re short on funds, which is why we make the borrowing process simple and efficient. Contact us today to learn more!