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5 Reasons Why You Should Pay Back Your Loans Early

The most important aspect of loans and advancements is the act of paying back what you owed. Taking a loan is now very easy but I cannot say the same for paying it back especially in case of personal loans without proper plan of repayment or inability to. This is why I encourage that before taking a loan, you should ensure that the repayment process will go smoothly whether in installments or as a whole.

However, while working towards paying back your loan, if you get to have the funds for repayment readily available even before the due date, then it shows how committed you are towards paying off your debts and it definitely comes with merits for you. So, I will be identifying and explaining five reasons why you should pay back your loans early.

 

1. It Guarantees Your Peace of Mind

The first reason why you should consider paying back your loan early is to save yourself from emotional stress. Being in debt comes with a burden that keeps you worried from time to time, you wonder about the penalties if you do not meet up with the due date, or the loss of your collateral scares you, you might even fear the disappointment of your guarantor if you provided one during the loan process and in situations where the loan is from friends or families, losing your respect might also be a thing of worry. All of these does not keep your mind at peace and in the long run poses a danger to your health. Therefore, ensuring and doing all you can to pay back your loan as early as possible eliminates your emotional and psychological stress, providing you with internal relief to focus on all other aspects of your life.

 

2. It Reduces the amount of interest paid

Except for Islamic banks whose sharia laws prohibits taking interest on loans, most lenders and financial institutions give out loans with interest where some can be high or low. Having to pay back your loan early makes you save money that is supposed to be used to pay interest consecutively. For example, if a loan of N50,000 attracts interest of N500 per month and you have 12 months to pay back. Therefore, if you are paying back your loan at that 12th month you will have to pay N56,000 in total, but if you pay back as early as the 6th month, you will only get to pay N53,000 thereby saving N3,000. However, you should note that some financial institutions charge prepayment penalty on loans especially personal loans. In this case, you are bound to wait until agreed due date before making your repayment because you won’t be saving anymore by paying early since you will also be charged a fee for it.

 

3. Improve Your Credit Worthiness

When you pay back your loan early, there are chances that you get to gain the trust of your lender and you also have a proof that you are credit worthy. Especially when you take a loan from an individual and not a financial institution, paying back your loan early means a lot to the lender and when next you need a loan I’m sure he or she would not be reluctant to because you are already found worthy of credit. In case of financial institutions, your credit scores get to increase and this way you can have access to even more higher loans than the one you paid back. It is just a matter of tit for tat. If the loan was for business reasons and you got to pay back early, this also shows how well the business is fairing and how profitable it is which is also an opportunity to attract more investors.

 

4. Focus on other Financial Goals

When you pay back your loan early you get to focus on your other financial goals and you also have the money to pursue them. If you hurriedly do all you can to take debt out of your financial life, it provides the opportunity to consecutively deal with other things on your financial bucket list. For example, you get to buy stocks, indulge yourself in luxurious shopping without guilt, save more, or even take on a new loan for a different purpose because it is best to run just one loan at a time.

 

5. Reduce Debt to Income Ratio

If you pay back your loan on installments maybe every month then you should be familiar with what debt to income ratio is. It is ratio of how much of your income is going towards paying off debts. For example, if you earn N100,000 monthly and you have to pay debt of N45,000 every month for 10 months, this means for the next 10 months, your debt to income ratio is 45:55. From this example, it means you took a loan of N450,000, so if you pay off as much as N250,000 as early as possible, in the consecutive months left to pay off the loan your debt to income ratio gets to reduce drastically, with you having more of the income to your self.

 


It might not always be easy to pay back loans early enough before the due date except in some certain cases, so while trying to ease your emotional stress, save money, focus on other financial goals and so on try not to drain your self and make realistic plans towards your early repayment goal.

5 Ways to Track Your Spending in 2024

I don't even know how I spent that money so and so gave to me. Only God how I spent my last Salary. That money so and so gave to me I can not even tell how I used it. Do these statements sound familiar? I'm sure it is but if you are the one constantly making these statements then you need some education on tracking how you spend. 


It is important to know where your money goes if you are going to make financial progress. However, tracking your spending can be tedious if you don't know how. I will sharing tips on how to keep track of how you spend your money. Some of them you probably have tried but the first and most important thing to note is that tracking your spending just like other aspects of our finances requires DISCIPLINE

We will get right into the 5 ways to track your spending.

1. Review Your Bank Account Statement

You probably get a monthly bank statement from your bank in your mail but do you read it thoroughly? This is one of the easiest ways to track your spending as your bank statement has a description of each transaction you make throughout the month.

Take time to study your bank statement for each month to gain insight on how you spent money that month. You can easily tell if you have spent wisely or not. This leads us to the next point

2. CATEGORIZE YOUR Spending

On perusing your bank statement, categorize the spendings you have made. The very first way to this is to divide your expenses for the month into recurrent and current. The recurrent are those items or services you spend money on on a daily, weekly or monthly basis. This can include transport to work or your place of business, utility bills, money spent in food and so on. 
The current expenses are those that happen only once in a while and can include unforseen circumstances like sickness. 

Having done the above, you can then go on to examine how much you are spending on each item in each category and you can tell where your money has been going.

3. USE A Spreadsheet

Draw a table to record your spending as you go. Make sure it is a very small portable book that you take with you everywhere. Record every expense made as you make those payments. If you purchase airtime, record it. If you buy snacks along the road, record it. Make it a habit. You will find that this will give you a more detailed record of how you spend your money as opposed to your bank statement.

4. USE A TRACKING APP
We are in the twenty first century and technology has its hand in every cookie jar. Expense tracking is no exception. If you are tech savvy which is expected you can avail yourself the luxury of using an app to track your spending. As you carry out transactions, record on the go. This is especially helpful since carrying a book to record may seem old-fashioned. Some of this apps are connected to your account and alert you when you make a withdrawal from your bank, make a payment at a Point of Sale outlet or transfer money.

5. USE A SEPARATE ACCOUNT TO SPEND
This one is for people who have multiple bank accounts. Make one of those accounts the only account you spend from. Spending from multiple accounts makes it too tedious to track your spending since you have to track for multiple accounts. It is recommended you use a savings account to spend.

Conclusion

These strategies are especially useful if you a re a business person that deals with large amounts of money monthly. Your spending account will be used to cater for your expenses while you may use another account to save or do business. I hope these tips have been helpful and I wish you a rich and fulfilling financial future.

5 Kinds of CBN Financing Initiatives for Entrepreneurs

 1. AGSMEs - 

EDI (Entrepreneurship Development Institute) must train you and then you apply through NIRSAL MFb


2. Cifi- Creative Industries Financing Initiative - movie and music production, fashion, IT (10M) and software production. Movie distribution (50 million) at 9% for 10 years. Apply through your bank by meeting your account officer.

3. TIES - Tertiary Institution Entrepreneurship Scheme / needs no collateral (only your degree certificate and NYSC certificate). Access up to 5Million individually at 9% for 5 years. 

4. Anchor borrowers programme - state governments

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5 Reasons Why You Should Pay Back Your Loans Early

5 Ways to Track Your Spending in 2024

5 Kinds of CBN Financing Initiatives for Entrepreneurs

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