A Secured Loan is an ideal option for those with low income requiring hefty sums for different purposes like purchasing a car loan or renovating a property. One needs to pledge a high-value asset for loan approval. 

Collateral or an asset grants flexibility on interest rates and lowers the total loan cost for the borrower. Moreover, it eliminates any risk for the lender, leading to quick loan turnarounds. A borrower may lose the asset pledged if he defaults on the loan or cannot pay it.

These are installment money loans from a direct lender, wherein you may qualify for less than an ideal profile and pay the amount in fixed monthly instalments. Upon default, the lender may rightfully claim the asset pledged. It could be anything – property, jewellery, car, etc.

It is why borrowers seek different ways to clear the Secured Loan early. However, one must tap the existing capital and the potential to clear secured loans quickly before taking another step further.

Why should you be careful about pre-payment charges?

A few lenders may ask for a pre-payment fee on secured loans. It is because if you pay the loan early, lenders may lose out on interest. Moreover, he may consider it a contract breach. 

The charge varies from lender to lender and the amount you must pay towards a secured loan. Thus, before overpaying the secured loans, carefully analyze the current loan terms and conditions. In case of confusion, discuss it with your lender.

Before making overpayments, ask the lender about the other loan payment schedule. Will you continue the same way?

Is it a good idea to pay a secured loan early?

Consider repaying the loan early if you are a business or person with seasonal income or profit. There are extra reasons that you may consider clearing off secured loans:

• You wish to pay off the secured loan amount with the property sale
• You want to consolidate debts to a better interest rate and pay early
• Want to save potential money on secured loans by paying them early
• If you are moving in
• Eliminate the fear or doubts of losing the property or asset staked

A secured loan works differently than unsecured loans like personal loans, doorstep loans. or even unemployed money loans in the UK. You do not require one on the collateral-optimized loans. A guarantor helps secure affordable interest rates so do secure loans.

However, you don’t have to worry about losing an asset, having a guarantor, or waiting until 10-15 years to wipe off the loan. It is a quick solution to your immediate short-term requirements. 

When should you avoid paying a secured loan early?

Likewise, there are reasons to wait until a sound date to clear off the dues. Here are some reasons to avoid paying the secured debt in advance:

• You may face early repayment charges
• You may not benefit from the deal if you have a low-interest secured loan
• If it affects your capacity to pay further, you may default on it
• If you have other (high-interest) loan repayments to make

An excellent way to decide whether to pay it is to ask the lender how much it will cost if you pay early. You can pay off the secured loan early if the difference between the ideal term and the revised loan amount is minimal. 

What projected sum can you save by paying the loan early?

The amount you can save with early repayment depends on multiple factors. 

• The length of the loan term left
• The original loan sum
• The loan’s interest rate
• The credit score

If you have only a few payments on the loan, then paying it altogether would not save you much. Conversely, having high-interest loans with considerable time on the repayment period may help you save hefty pounds.

Instead, you may benefit from paying loans early. Some lenders allow one to pay these early. It is usually a tiny amount that comes with minor obligations. Paying these high-interest loans early can eventually save money and raise your credit score.

Well, you must be googling. Can I avoid these early repayment charges? 

READ AHEAD.

Ways to Avoid Early repayment charges on Secured loans

On average, a person usually pays 1-5% of your outstanding mortgage deal for making an early exit on the secured loan. It may differ from lender to lender. Here is how you can save on early repayment charges on secured loans:

1)     Decide how much you can pay

As mentioned above;d discussing the whole situation with the lender is always better. Understand the repercussions and benefits of a secured or  installment money loan in advance. Generally, one cannot pay over 10% of the mortgage yearly.

2)     Consolidate secured debts with no early repayment charge

While you may encounter hard luck securing this deal, you must try it. Check for the possibility of the same with the existing lender or turn to someone that may offer that.

3)     Know the deadline

There is a particular early repayment deadline beyond which a lender does not charge anything. It is ideal for individuals approaching the end of their secured loan tenure. Before that, do not consider overpayment on secured loans.

4)     Transfer existing mortgage to another property

Some lenders allow borrowers to transfer the current mortgage to a fresh property without acquiring any early repayment charges. However, it is not guaranteed. It entirely depends on the payment behaviour and the type of secured loan you have. It is also known as mortgage porting.

3-tip easy route to settle the secured loan early

If you find the situation or circumstances in your favour, follow the below steps: 

1. Tell the lender in writing that you want to pay the secured loan
2. Enquire from him the total amount you can legally pay
3. You will receive the request to pay the amount within 28 days

*A lender may deny the borrower the same too. It entirely depends.

Bottom line

Paying a secured loan early has its positives and negatives. It is all about the timing and the financial stability you currently have. The above blog will help you decide whether you should consider early secured loan repayment. No 2 persons have the same financial security. Thus, decide post expert guidance.

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