Should I save or pay off my personal loan?

Friday, 31 July 2009 01:00

A reader from Scotland is wondering if it makes more sense to pay off her personal loan or save her cash in a savings account.

Jo Crosse, Halifax and Bank of Scotland personal loans expert, tackles the problem.

Sarah from Fife asks:

I am paying off a personal loan and still have five years left until it is fully repaid. Is there any point in putting money by in a savings account to help pay off the loan early?

Jo replies:

Before deciding whether to pay off your loan early, you should check the terms and conditions of your loan as some loan providers charge a fee for paying off the loan early.

You will need to work out whether it’s better to pay the loan back over the remaining term and put your money into a high interest savings account or whether you will save more money by paying the loan off (even if you incur a fee) than the interest you would make on your savings.

You need to check the terms and conditions of the loan agreement but in many cases you will not be better off if you make additional part repayments as the interest and charges you pay on a loan will not be reduced.

However, if you can repay your loan early, in full, you may be entitled to a rebate of interest meaning you will end up paying less back overall.

If you have a question for Jo, go to the Ask the Loans Expert section.

Or for more information on your loans options go to personal loans at Halifax.

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