Having a payday loan, like any loan, costs money and the longer you have the loan for, the more the interest adds up. This means that the longer you have it; the more expensive it is. Even though the loan might only be due to be repaid in a few weeks, repaying it early could still save money and could be worth it, even if you only make a small saving. You may also want to repay just part of it and that should reduce the interest as well as you will not be being charged interest on such a large amount. Therefore, you might think that repaying it early will mean that you save money but there are some things that you need to be aware of before you do this.
Whether the loan company allows it
It may not be possible to repay the loan early. If it is something that you are hoping to do but you have not yet chosen a loan, then you should check before taking it out. It could be very disappointing if you were assuming that you could repay it early and then you find out that you cannot and you have to pay all of the interest anyway. If this is not clear then the lenders customer service department should be able to clarify it for you.
Early redemption fees
Some loans will have early redemption fees. These will not apply to all loans though and so it will again have to be something that you will need to check. An early redemption fee is a charge that lenders make if they are going to forgo some interest. It might be almost as much as the interest would be anyway but it could be a lot less or there could be no fee at all. Make sure that you are aware of whether there is one and if so; how much it is. It is best to again check this before you take out the loan, if you can as otherwise it might be too late and you may end up being disappointed.
Whether you can afford the rest of your bills
It is great to repay a loan early and be free of the debt and repay less money. However, this can come at a price. You do need to make sure that you have enough money to be able to repay the rest of your bills and cover your monthly expenses. You will be really annoyed if you repay the loan and then need another one because you have not got enough money to manage.
Therefore, you need to do some calculations. Make sure that you get a few previous bank statements and take a look at what bills normally come out. Think about whether you are expecting anything extra to come out before you next get paid as well. Perhaps there are some quarterly or yearly bills to pay or you might need a few new things, have birthdays coming up or things like that. There are lots of things that might need paying for and it is good to be sure that you will have the money that you need available. It should not take too long to work this out and it will be worth it.
Repaying a loan early can be a great thing. You could save money in interest and that will enable you to spend that money on other things. You will also be able to rid yourself of debt earlier than you expected and that could reduce your stress levels. However, there may be a few barriers in your way. It could be that the lender will not allow you to repay early or that they will charge for this. You will need to check this and if you are choosing between loans and hoping to repay early then make sure that you find out if this is a possibility with the lenders you are looking at and whether they will charge you if you do so.
You also need to be extremely careful that you do not spend money on repaying a loan early and then find that you have none left for covering your other costs. If this does happen then you could end up having to borrow again and this could be extremely costly. You could end up paying almost twice as much by having to take out a second loan. Therefore, you need to avoid this if you can. Make sure that you calculate first whether you will have enough money and hopefully this will protect you against this sort of thing happening.
So it is not definite that you will be able to repay your payday loan early and so you will need to check. You also need to be completely sure that this is the right decision for you.