Paying a Loan Back Early
We all need financial assistance from time to time. Whether you are an entrepreneur starting your own company or you need help for financing your studies, getting a loan can provide a great sense of relief. What you are responsible for is making sure that you keep up your end of the agreement by paying the loan off every month until the end of the agreed repayment term.
What happens if you are interested in paying a loan back early?
Paying your loan off early means that you can make quite significant interest savings. The benefit here is that your loan won’t keep accruing interest.
After you have paid your loan off, you may also then have the flexibility of being able to choose an insurance provider that will suit your needs better.
You will have free cash in your monthly budget.
If you are paying a car loan off early, you can avoid balloon payments.
In South Africa, according to the National Credit Act, consumers are entitled to settle their debts in advance at any time.
The case with Home Loans differs slightly in South Africa. Many banks in the country will not penalise you if you pay your home loan off early, just as long as you don’t officially terminate the bond without notifying them.
A penalty usually applies if you don’t give 3 months’ notice that you are cancelling a mortgage and collecting the deed.
How can you pay your home loan off early?
- You could pay your home loan installment bi-weekly instead of just once a month.
- If you can afford it, make an additional bond installment every month
- Make lump sum payments when you can
- Shorten your loan term. This will mean you have to pay higher instalments, but you will be bond-free in half the time.
Remember to contact your lender first before you pay your loan off early.