How to Pay Off Personal Loan
Most of us end of buying personal loan when sudden emergency arises. But remember that, reading all the terms and conditions of personal loan is very essential in order to avoid loan turning expensive for you. Although any kind of loan should be paid early but when it comes to personal loan the sooner your pay better would be your financial health since it carries higher interest rates. Whether you can pay off early, depends on the terms mentioned in the contract. Because some personal loans does not allow you to pay before the set duration. In either case listed below are the must know tips on paying off your personal loan early as it has many benefits which includes improved credit score:
1) Monetize Assets
If you own a house/car, life insurance policy, shares, bonds, debentures etc. assets, then you can make use of these to pay for your loan. Banks also offer loan at low interest rate against these assets through which you can pay for personal loan.
2) Consolidate Debts
If you have taken multiple loans and are unable to pay the amount then consider debt consolidation. Through this you can pay off your debts slowly. But remember that increasing duration of loan is costly. But main objective of debt consolidation is to relieve you off short term problems. Once your financial health improves you can then pay off your loan amount before the pre-fixed period.
3) Top-up or Converting to Secured Loan
If you have taken home loan then you can use top-up facility on your existing loan and get credit on lower rate. Apart from this there is one more alternative. You can talk to your bank and get convert your personal loan to secured loan against your house or vehicle. But remember this should be done only when this house/vehicle is free from debt. And also be aware that in case you default this loan, you are at risk of losing the collateral. So it is must to analyze your paying capacity before converting your current debt to secured loan because implications of defaulting a personal loan can cause difficulty in getting any type of loan in the future also affecting your credit score. It is advisable to the first time defaulter to discuss their condition with their bank/financial institution and find out the solution. If your previous history is good, then lender might penalize you of 2%-3% on the default amount.