Paying Off Personal Loans Early: What To Consider Beforehand

Paying Off Personal Loans Early: What To Consider Beforehand

Life, as we know it, is constantly unpredictable. Hard times can befall anyone without notice, catching many off guard and leading them to financial trouble. Thankfully, with the help of licensed money lenders and easy loans in Singapore, getting the help you need to deal with such problems is always available and within reach.

With a personal loan that comes with relatively fast loan approval in Singapore, borrowers can use their loan to solve all kinds of issues they may face, such as accidents, unforeseen money shortages, renovation work, and more. Of course, in order to make a profit for their service, money lenders will have to impose interest on their loans. And for many, paying off their loans as early as possible may seem the best way to save money. But is that really the case?

In this article, we share the pros and cons of paying off personal loans early to help you consider beforehand.

Benefits of paying off a loan early

Paying off a loan early has its benefits, namely;

1. Save money on interest fees

The first and foremost advantage of paying loans earlier than expected is avoiding more interest fees since it ultimately lowers the cost of borrowing, netting more savings. For instance, let’s say you take out a $30,000 personal loan with a 10 per cent interest rate and pay back $10,000 of it with three years left on your loan term. Should you manage to pay off the remaining amount much earlier than that in a lump sum, you will save approximately $6,000 on interest fees compared to paying $9,000 in contrast.

2. Get back extra money per month

With no interest fees to worry about, you may enjoy the extra cash in your monthly budget for other needs. This additional cash can be used for your day-to-day expenses or funnelled into a savings account for future goals and milestones, such as building an emergency fund, investing, starting a business, or more.

3. Lowered debt-to-income ratio

A person’s debt-to-income ratio is determined by dividing the sum of their debts by their income, along with key metrics used by money lenders to guide their lending decisions. A lower ratio may lead to an increased credit score, allowing you to qualify for more favourable loan terms and better overall loan choices down the line.

4. Gain peace of mind

One less debt to pay off is one less issue to worry about. The sooner you are able to pay off a loan, the quicker you will be free from debt responsibility – easing your stress and loosening your monthly budget for other expenses.

The disadvantages to be wary of

Contrary to what many might believe, paying off your personal loans early is not always for the best. Below are a few of the possible negative impacts to consider;

1. Your credit score may be affected

Paying off a loan ahead of time could cause credit history changes that may negatively affect your credit goals. This can occur because a personal loan generally appears as an instalment loan account on your credit report and includes the specific repayment schedule and loan amount. Since payment history is one of the most significant factors that determine your credit score, a clean record of on-time monthly payments is more beneficial for your finances in the long run. Paying early means potentially missing out on months to years of positive payment history.

2. There may be other smarter money options

Before deciding to pay off your personal loan early, it would be good to consider if you have other possible ways to make better use of your finances. For instance, if you are dealing with several loans at once, it may be better to focus on clearing your other debts with higher interest rates than your personal loan. Alternatively, you could also consolidate your debts through debt consolidation loans to simplify your repayment duties.


In the end, whether you can pay off your personal loans early will heavily depend on the money lender. When considering your decision, it is best to account for the potential fees you may incur and determine if the pros outweigh the cons based on your situation and if the benefits are better for the short or long term.

Should you require a personal loan for an emergency, let us help you at Orange Credit! We are a licensed and trusted Geylang money lender providing easy, quick, and flexible loans in Singapore with hassle-free loan processes for those in need. Contact us today to apply for a loan.