Do’s and Don’ts of Repaying Your Personal Loans Early

Personal Loans

One of the fastest-growing debts in the US right now are personal loans, simply because they’re versatile. From financing your vacation to consolidating your debts, personal loans can help with most financial troubles.  Personal loans are also one of the easiest loan types that people can get as you can apply for it online. 

A considerable percentage of personal loan borrowers took their loans online, especially since the pandemic continues. Personal loans are also straightforward and easy to understand. Like any other type of loan, you will be paying it with monthly installments with interest rates. While some lenders allow people to zero out their loan balance early, some lenders don’t. 

Some lenders will give you a penalty when you do so, further adding up to your debt. That said, always read the fine print to be aware of such terms. Also, there are some things that you need to remember when you’re planning to pay off your personal loans earlier than the intended time. 

Here are some of them.

Do Pay Attention to the Repayment Terms

Just like mentioned earlier, some lenders apply an additional fee or penalty when a borrower pays the balance earlier than the repayment terms. That said, reading the terms and conditions, often in the form of fine print, will help you be more aware of your repayment terms. 

Also, don’t just read it. Remember it always as you pay your loans. If you’re planning to fully pay your balance, you can also contact your lender to let them know. If they say that there will be a penalty, you need to reconsider your budget first before doing so. Contacting your lender is a helpful way to know the full extent of the repayment term and other questions you might have.

Don’t Drain Your Savings Account

One of the main things you can do to be financially secure in life is to have a savings account and an emergency account. Everybody knows that since it’s common sense, after all. But for some people, it’s hard to do so, especially those living from paycheck to paycheck.

If you take out a loan due to an unplanned expense, the first thing you might think of is to pay it with your savings. While this isn’t a bad idea entirely, doing so can come with risks. Of course, the first risk is that you might lose some money or the savings itself that you intended for another purpose. 

This is especially true in today’s economy. The world is experiencing a pandemic, and because of it, many people lost their jobs, and the unemployment rate is at an all-time high.

To be honest, you’ll be better off paying it with your emergency funds. Emergency funds are made for this, so it’s only natural to pay it with your emergency funds.

Do Prioritize Your Bills 

Before you go ahead and pay off your entire balance to zero out your loan, it’s essential to set first your daily allowance and monthly expenses like utilities, rent, and groceries. You might have paid your balance, but you don’t have anything left for anything, leading you to take out a personal loan again. If you also have other loans, you might want to consider them in your budget. 

This is especially true for secured loans. As we all know, secured loans require collateral. A mortgage and auto loan are examples of secured loans. This means that if the borrower defaults on the loan, the lender has the right to seize the house or car, based on the situation.

Also, not prioritizing your expenses means that you’ll run out of money sooner or later, money that you have to pay to another loan. This will prompt you to take out another loan, leading you to a never-ending debt cycle.

Don’t Tap into Your Retirement Fund

The average APR or annual percentage rate of a personal loan is relatively high. If you took out a personal loan with a high APR, and you’re having some difficulties with it. Tapping into your retirement fund might have crossed your mind. 

Don’t do it. You might not even get it anyway since retirement funds require you to be at a certain age. And even if you can, there is a possibility of a penalty fee.


Seeing a zero balance on your loan is surely refreshing to see. After months of toiling just to keep up your monthly installments, the time where you can zero it out finally comes. However, be sure to understand your repayment terms’ full extent and make sure that you are not tapping into other critical funds just to zero it out. Surely you’d prefer to pay monthly for the next few months than starving for a few months.

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