When it comes to credit card debt, it’s often advisable to pay more than the minimum required each month to avoid interest charges and reduce your credit utilization ratio. But what about payments for personal loans you take out?
Many of our customers come to us with the question, “How much more than the minimum payment should I pay?” Here’s what we tell them and how we can help you get on a good financial path.
Paying Just the Minimum
Many people only pay the minimum on their personal loans because this is all they can afford. Paying just the minimum helps you stay on track with your payments and avoid confusion about how much is due and when. It can also help you avoid potential early payoff penalties and maximize the amount of available money you have to use at any given time.
Benefits of Paying More Sooner
Some people who take out personal loans enjoy the peace of mind of paying more than the minimum amount and getting out of debt as quickly as possible. You might find comfort in knowing that you have one less bill to take care of each month.
Paying more than the minimum amount can help lower your debt-to-income ratio and allow you to save money on interest. In fact, the total cost of borrowing can decrease considerably if you pay the loan off early.
Understand Possible Prepayment Penalties
However, certain loans come with prepayment penalties, and this policy varies from one lender to the next. Understand your loan details so that you don't pay more in penalties than necessary.
There may also be a temporary hit to your credit score if you pay off a loan early. This is because removing a debt from your credit mix and reducing the length of your credit history can affect your credit score. However, the impacts of these factors may be negligible compared to the overall impact of resolving your debt.
How Much More Than the Minimum Payment Should I Pay?
The short answer to “How much more than the minimum payment should I pay?” is that it depends on how much you can afford, what other debts you have, the amount of your loan, and your loan’s policy details.
If you are interested in paying more than the minimum monthly payment, contact the branch office nearest you to discuss your loan with one of our friendly and knowledgeable staff members. We are here to help you through every phase of the lending process, from applying for a loan to helping you find a payoff solution that suits your needs and financial goals.