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. It improves 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. It helps you 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. It reduces your 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.

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