The average American has around $38,000 in personal debt. Many people who take out personal loans feel this debt is weighing them down, and they feel that they can’t truly begin their life until the debt is paid off.
The best answer is to pay the debt off early, right? Right?
Well, not exactly. There are many things to consider before deciding to pay a debt off before it’s due, like how high the interest rate is or whether or not you should take the money from a savings account to pay off the loan.
On the surface, paying off a bad credit loan may seem like a good idea, but it can harm your financial future if you don’t think about it carefully enough.
Read on for the ultimate list of pros and cons of paying off a cash advance loan early.
Clearly, being in debt for many people seems like the end of the world. It may seem like the easiest and best way to cope is to simply pay off the debt and get on with your life.
We agree. Here are just a handful of the benefits that come from taking control of your financial future and paying off your cash advance loan.
It Can Help Your Credit Score
The best way to show potential lenders that they can safely offer you an installment loan is to have a good track record paying off loans in the past. You may not know everything that comprises your credit score, but being able to pay off your debt early shows banks they’re in good hands.
You should keep in mind that this is just one of many ways to improve your credit score and that even if you pay your loan off later it may not impact your credit score.
If There’s a High Interest
One of the most difficult things about getting a cash advance online is that the interest rates may be incredibly high. This is especially true if you have taken out payday loans online or no credit check loans in the past. Although you only borrowed a little, you may end up paying back several times that amount.
If Being in Debt Is Hurting Your Mental Health
This is a difficult advantage to talk about, but for many people, there is an emotional component to being in debt. There’s often a lot of fear, stress, and anxiety that comes with it, and that can really harm your mental health.
We know that
Unfortunately for many, they can’t simply pay off debt to deal with their mental health. But if a debt is stressing you out and you’ve got the money, this is one of the best reasons to pay of your cash advance loans now.
This may seem counter-intuitive. It makes the most logical sense to pay off a loan early. You avoid the high interest rates and the stress of not knowing if or when the loan is going to be paid off.
But there are several cases where paying off a loan immediately may do more harm than good.
Your Cash Advance Has Prepayment Penalty
A prepayment penalty is an amount you owe if you pay back your loan too early. This fee is usually stated in the contract of the loan, and it’s usually a percentage of the remaining balance of the loan.
This may seem unfair at first. Why would you be in trouble for paying off your loan early?
The simple answer is that guaranteed approval loan companies make money.
Basically, loan companies make money through interest on loans. When you pay off a loan early, they aren’t making any revenue. The penalty is there to ensure that the company makes its money back if it doesn’t collect enough in interest.
Paying the Loan Has Tax Advantages
Certain kinds of loans like bad credit student loans may have tax-deductible interest, and you may decrease your tax bill by waiting a while to pay off your loan. If you’re interested in finding out about how you should deal with your debt, then we recommend that you talk with a tax advisor.
Note that when there are more tax savings then there is interest on the loan, you may want to consider paying off the loan later to maximize the tax deduction.
You Have to Take Money out of Savings to Pay off the Loan
Before you choose to pay off a loan, you need to consider how much you might have to take out in savings. There are often better ways of paying off an online cash advance.
There’s no better asset to have than cash, and once you use it to pay off the debt, it’s gone forever. This means that if an emergency comes up and you need cash quickly you may have to take out more cash advances leading to a cycle of debt.
There Are Better Payment Plan Options
If you have debt that lenders are afraid they may not be able to collect, you may be able to renegotiate the fees and payment structure of the loan.
In fact, many companies are willing to settle for only a fraction of the original debt. This may be hard to do for people without financial savvy, and you might end up paying more.
However, it may harm your credit score and cause you to have a difficult time getting a loan in the future. And in some cases, having bad credit can impact your ability to find a job and even a long-term partner.
Looking for a Loan?
Paying off a cash advance early is one of the most serious decisions you’ll have to make in your financial future.
If you want to know how to get a loan, contact us today. Here are some other articles that might be helpful:
Why Avant Credit is a great choice for debt consolidation
Need a PAL? Payday alterenative loans explained
Your guide to personal loans no credit check
The ultimate guide to unsecured loans for people with bad credit