- Image via Wikipedia
If you have a long term loan, or something that has a high interest rate, you may have thought about trying to pay it down or completely off, early. This is, in most cases, a very good idea. When are some times that you might want to consider this?
If you have a home loan, you might want to think about paying it off as early as possible. Putting a little extra into each mortgage payment can help with this. Even being able to cut the time of the loan down by a few years can save you thousands of dollars in interest payments. Though the interest on a home loan is generally not very high, it adds up over the course of 30 years. Even if you have a 15 year loan, there is a large amount of your money going toward the interest payments. The sooner you can get this paid off, the better. One idea for this is to take a windfall payment that you may get, such as a tax return, and put all or most of it toward your loan payments.
A car loan is very similar, though many times has a much, much higher interest rate, and a shorter loan time. The average car loan is about five years in length. Interest rates can go up as high as 24 percent! Again, the faster you pay this down, the more money you will be saving in the long run. Some people consider refinancing their car loan to get a lower interest rate, but think about the fact that you will be paying on the car longer, and so a large amount will still be going toward interest.
Many people feel concerned about paying extra on a loan, because it can feel like they are just throwing their money away. Though this may feel frustrating in the short term, you will be glad you did it in the long term.
