Having a home loan that allows additional repayments can help you pay off your home sooner.
There are several ways that these additional payments can be made. Some lenders will allow you to simply make them whenever you happen to have an excess of cash, with these payments going above and beyond your typical monthly obligations. For added flexibility, look for a home loan where additional payments can be withdrawn, in the event the extra cash you've contributed is required elsewhere.
An alternative is to switch your regular payments from monthly to fortnightly, resulting in an extra payment per year. This may not sound like a big difference, but every little bit helps to reduce your overall home loan cost.
Of course, additional payments aren't the only way to pay off a home loan in a shorter period of time. Another great option is to utilise an offset account. These are special savings accounts directly linked to your mortgage, with the balance held in the savings account reducing the overall interest that needs to be paid.
If you've already been paying off your mortgage for a few years, and would like to make additional repayments but aren't able to, it's important to remember that you can switch your loan provider. This is known as refinancing your home loan, and it can be a great way to open up new options such as an offset account.
There are all sorts of ways to optimise your home loan and become debt-free in a shorter period of time. To find out more, contact Beyond Bank today.
Can I pay off my personal loan early?
Personal loans can be a practical and efficient way to achieve a goal. Whether you want to start your own business, buy a new car or do anything else that needs a cash injection, life can be that little bit easier when your bank balance is healthier.
With careful planning and budgeting, you can work out an affordable repayment schedule for your personal loan. However, you may find that as time goes on, things change that put you in a healthier position than you expected and want to pay off your loan more quickly – maybe even in full.
There are many good reasons to do this, though some lenders charge penalties for paying off your loan early. That's not the case for personal loans taken out through Harmoney.
The financial benefits of paying off a personal loan early
The main benefit of paying a personal loan back early is that it saves you money.
No matter how long your loan term, the earlier you can pay off your debt, the less money you'll have to pay in total. That's because, with interest, you pay more the longer you have a loan.
Using our personal loan calculator, you can see this in action. A $30,000 loan with great credit history totals $3,898 in interest over three years, but $6,228 over five years.
With Harmoney, unlike many other lenders, there is no fee for paying your loan off early. Apart from the fee you pay at the start of your application, the only money you pay is the return on your loan and the agreed rate of interest (unless your account becomes overdue).
Other benefits of paying off a loan early
As well as saving lots of money, you'll also find that you can enjoy the feeling that comes with freedom from debt. This is especially true for people paying off debt consolidation loans, as they know only too well the stress of having unmanageable debts.
Once you've paid off all the money owing, you'll find that your monthly budget stretches further and you can put your income to immediate use in areas that you may have been neglecting.
How to pay off your loan early
There are three ways to pay off your Harmoney loan quicker than set out in your contract:
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Increase your monthly repayments
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Pay lump sums throughout your loan term
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Pay off your loan in full with one lump sum.
It’s important to note that all of these approaches are completely optional. You can, of course, simply make your regular scheduled repayments over your 3 or 5 year term.
Increase your monthly repayments
If you've been able to make your monthly repayments easily, or your finances have changed (maybe you got a nice pay rise), it's possible to increase the amount you pay back each month. By doing this, you'll be able to make larger contributions and pay back your debt more quickly.
If you want to change details of your personal loan through Harmoney, either email our customer service team at or call 1300 042 766.
Pay a lump sum
If you've come into a bit of money – maybe your new business won a big contract or you've been given a generous birthday present – putting it towards your loan will reduce the amount owing and lower the interest you have to pay for the remainder of the term.
To do this, make a payment to Harmoney through BPAY.
You can then should log into the portal to see the amount you owe come down plus your BPay details - the Biller Code and individual BPay Reference number. Once you have these details, login to your own customer banking portal, and follow the instructions for BPay payments (often its Transfer money).
Paying off your loan in full
If you want to pay off your remaining loan in one fell swoop, you need to go through a slightly different step.
First, log into the Harmoney dashboard. Make your way to 'My loan' and then click on 'Payout'. On the next screen, put the date you would like to make the final payment on and select an option from the drop-down menu. If you're happy with the estimated payment, click on 'Send instructions' for the next steps.
These instructions will let you know how to pay off your debt early, but be sure to make the payment by the date stated, otherwise the situation could change.
If you have the means, paying off your loan early can be a smart move. Just make sure to check your budget so you can be confident that you won't be causing yourself any short-term cash flow problems.
Disclaimer. Information in these articles is written to provide general guidance, and any details are correct at the time of posting. You should consider how the information might apply to your personal circumstances, and consider whether your needs mean you should seek specialist advice.
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
So you’ve got a personal loan, and now you’re in a better spot financially. You might even have enough money to start paying off your personal loan early.
But before you start sending in those extra payments, there are a few things to think about first. While it’s always a good idea to pay down debt fast, there might be even better uses for that extra cash depending on your situation. And depending on your goals and how your loan is structured, there actually might be some benefit to keeping it for the full term.
Here are the main points to consider when deciding whether to pay off your personal loan early.
Can You Pay Off Personal Loans Early?
Yes, you can typically always pay off a personal loan early. However, that may come with a cost depending on your lender. While most personal loan lenders don’t charge you to pay off your loan early, some may charge a prepayment penalty if you pay off your loan ahead of schedule.
Prepayment penalties typically start out at around 2% of the outstanding balance if you repay your loan during the first year after applying and qualifying. Penalties then decline for each subsequent year of a loan until they reach zero.
If you’re thinking of paying off your loan early, check your loan documents or call your lender to make sure it doesn’t charge prepayment penalties before sending in some extra money.
When to Pay Off a Loan Early
If you have extra money, paying down your debt can help your finances, no matter what type of loan you have. However, it’s also true that your extra money could be more useful elsewhere, too.
Before you pay off a loan early, it’s a good idea to make sure that you have an emergency fund in place. That’s because if you send in your extra money and a disaster strikes, you might have to go into debt again, and you’ll be right back at square one. No one wants that.
If you do have an emergency fund in place, take a look at your other types of debt, especially their interest rates. Credit cards, for example, often have higher interest rates, so it can be a benefit to pay down that debt first with your extra money.
Finally, consider your long-term goals and what you could earn if you invested that money instead. If your personal loan charges a higher interest rate than what you could earn if you invested the money elsewhere, it’s usually a pretty safe bet to pay down your personal loan. But if you could earn more money in another investment, such as an index fund, it might be better to shuffle your cash there because you’ll earn more than you pay in interest on your personal loan.
Related: Personal Loan Calculator: Estimate Your Payments
Benefits of Paying Personal Loans Off Early
Paying off your personal loan has a lot of benefits, including:
- Saving money on interest
- Lowering your debt-to-income (DTI) ratio
- Eliminating the stress of owing money
- Paying off your debt and getting rid of your monthly payment sooner
Drawbacks of Paying Personal Loan Off Early
Here are some of the downsides of paying off your personal loan early:
- May reduce your opportunity to build credit
- Extra payments could have been used to save or invest
- You may have to pay a prepayment penalty
Does Paying Off a Loan Early Hurt Your Credit?
It seems kind of cruel—you’ve demonstrated good credit habits by not only paying off your loan on time but paying it off early. Shouldn’t you be rewarded with a better credit score?
Unfortunately, it’s not always so clear-cut. You typically won’t see that much of an impact on your credit score. Instead, a slightly bigger concern is that you won’t have as much opportunity to build credit. The more on-time payments you can get on your credit report (especially if you’ve made late payments before), the more it will help your credit score.
If you pay off the personal loan early, you lose the opportunity to make those on-time payments. (On the flip side, you also take away the possibility of making any late payments too, which would have an even bigger negative impact on your credit score.)
Also, once you pay off your personal loan, it’ll be marked as a closed account in good standing on your credit report, assuming all of your payments were made on time. If so, it’ll stay on your credit report for another 10 years. It will continue to help your credit score, but not as much as when it was an open account (i.e. if you were still paying it off).
If you pay off your personal loan three years early, for example, that means it’ll fall off your credit report three years sooner, and then it won’t help your credit score at all.
Bottom Line
When it comes to paying off your personal loan early or not, it’s usually a matter of better and best. Both options are good, but one may be better than the other. If you’ve received some extra cash, paying off your personal loan will generally help you. But whether it’s the best use of your money is another consideration entirely.
If you’re the type of person who doesn’t like the idea of carrying debt and already has an emergency fund, you might do best with paying off your personal loan. On the other hand, if you’re more concerned with building credit and you think you can find a better use for that money elsewhere, then by all means choose to hang onto that debt a little longer by continuing to make the minimum payments.
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