Why it is Better to Pay Off Your Personal Loans Early?

Paying off a personal loan early remains a choice of the borrower based on the financial health and necessary obligations they have in hand. It may be prudent to close the loan before the stipulated tenure if one plans to save the interest and get rid of the monthly repayment obligation. 

However, while filing a personal loan application, it is crucial to understand the foreclosure terms and conditions mandated by the lender to learn about the prepayment penalties, if any. Based on the specific risk management portfolio and borrowers’ financial situation, the lender may or may not encourage them to pay off the personal loan early. 

Now, let’s get to the question of why it is better to pay off your personal loans early; here are the benefits: 

Benefits of Paying Off Personal Loan Easily:

  • Savings on Interest:

Prepaying a loan translates into saving the interest amount. When borrowers pay a lump sum amount as part payment or full payment towards the loan, they may decrease the EMIs and added interest. This saved amount can be further invested to make good profits. 

  • Credit Score Improvement:

A debt-free individual holds a better credit score. When individuals are not under any type of loan, their finances become healthy, and the monitoring agencies put them in the credible borrowers’ bracket. This improved credit score also opens doors for enhanced funding to meet significant needs such as business expansions. 

  • Free Finances to Meet Other Expenses:

Prepaying the personal loan puts a coveted stop on the monthly outgo. The funds used as EMIs, which are not required anymore, can be used to buy gadgets, plan holidays or meet any other long-awaited expense. 

  • Chances of Getting Better Loan:

Once repaid fully, a personal loans is no more an obligation. However, in the wake of another emergent situation and with an improved credit score, one can always apply for a loan offering a better interest rate or for more loan amount. It is a crucial point only prudent financial planners can gauge and apply. 

When deciding to foreclose a personal loan, it is essential to understand how it can be done. 

  • Make One-off Part Payment:

When a borrower gets hold of a significant amount (gift money, bonuses, investment profits), they can make a one-off payment towards the loan. The amount paid is added to the principal, lowering the due amount.

  • Follow a Bi-monthly System:

This essentially means that a borrower sets a repayment cycle to put a stipulated amount towards their loan twice a month instead of a single EMI. That way, the individual puts in more money every month and can close the personal loan quickly. 

  • Debt Consolidation Loan:

The borrower can apply for a consolidation loan to close multiple avenues of debt and foreclose a personal loan early. Following this, they will only have to pay off one consolidated debt instead of multiple loans. Not only does it ease the process of repayment, but it also results in cost-effectiveness if the interest for a single loan is lesser than the multiple interests combined.


It is important to remember that foreclosing personal loans are subject to terms and conditions. Before applying for the loan, it is crucial to check the minimal prepayment penalties and other charges, making it easy to make a foreclosure decision when you reach the point. 

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