Personal Loan

How Important to Paying Off a Personal Loan Early

Loans are one of the most ubiquitous financial instruments. Loans are of various types. While some are meant to fulfill Personal Loan needs, others cater to business, house construction, travel, medical emergency, or any other legally acceptable requirement. Because loans, especially personal loans, are a relatively cheaper option when you require urgent money, people often avail more loans than they can repay. And, when they are unable to bear the burden of EMIs, they default.

Defaulting can cause irreparable damage to a borrower’s financial reputation. First, it can bring their credit score to below 700-levels, which can make further loan applications difficult. Secondly, the lender may impose a hefty fine on the borrower. Thirdly, the lender may file a court case against the borrower.

Hence, if you do not want to tarnish your reputation and financial stability, consider paying your loans on time. Alternatively, you may clear off your dues even before the loan term expires. But what are the perks of settling off your dues earlier? Read on to discover.


The Benefits of Settling Off Personal Loan Dues Early

  1. Enhancement in Credit Score

Generally, when you take a long term personal loan, you get up to five years for repayment. If your credit score is below 700, it may take up to five years to increase.

By prepaying, you may quickly increase your credit score and give a boost to your credit profile. Many a time, when you approach a lender, they would rate your loan application based on the credit score. By having a higher credit score, you can negotiate the interest rate and the terms of the personal loan.

Use the personal loan eligibility calculator to find out how much you are eligible for at the moment.


  1. Achieve Debt-Free Status Earlier

When you repay the loan principal and interest every month, the lender would be happy. However, that will not change your debt status. You would still be considered a person who has an unpaid debt.

By clearing off the personal loan principal and interest early, you can achieve a debt-free status. And, future lenders would be more than happy to approve your loan application when you reapply. As an add-on benefit, you may also receive loyalty discounts on your future loans.


  1. Have More Money in Your Wallet

EMIs increase your monthly liabilities. With inflation steadily rising, the cost of sustenance is growing every year. The money you need to live happily at the moment might not be good enough to help you survive five years later.

Hence, by paying the personal loan dues earlier, you can have more money in your pocket, which you can invest in other high-return instruments. Back of the envelope estimates show that you can earn more money by closing your loans earlier than by dragging it till the end of the term.


  1. Increase Mental Stability

When you are repaying a loan, you might have to sacrifice other essential desires and needs. Many people fall into the trap of loans and apply for more loans on top of an existing loan.

By clearing off your loan earlier, you may have more cash at your disposal. More money in hand means more mental peace.


When Should You Not Pay Early?

A personal loan is the most flexible loan that you may avail. You may use the funds for any purpose you like. By using the funds to construct or renovate a house, you may be eligible to receive tax benefits of up to INR 1.5 lakh, under Section 80C. You can also claim tax deductions of up to INR 2 lakh, under Section 24.

If you are using the personal loan for home improvement or construction, paying off the dues earlier will make you ineligible to claim tax deductions.

The online personal loan eligibility calculator can be the best starting point for saving money.



While paying off a personal loan earlier may offer you several benefits, it can set you back in the short-term. But if you are serious about leading a happy future, sacrificing a little at the moment may work wonders.

Leave a Reply

Your email address will not be published. Required fields are marked *