Factors that Could Affect Early Payoff

Before you jump headfirst into making extra loan payments, there are a couple of things to consider that could impact your overall results.

  1. Research prepayment penalties. Make sure that your loan doesn’t have any prepayment penalties. While less common today, lenders use these fees to discourage borrowers from paying off loans early. A prepayment penalty is a fee incurred if you pay the loan off earlier than agreed upon. Be sure to check your loan agreement prior to making any extra payments toward your loan.

  1. Pay down the principal. When making additional payments toward your loan balance, the money must be going to the correct part of your loan. Your loan payment consists of principal (the amount borrowed) and interest (the cost to borrow money). Be sure to notify your lender that your additional payments should go toward the principal portion of the balance. Otherwise, they may assume the funds are to cover upcoming payments or, if a home loan, may be put toward your escrow to cover taxes and insurance.

Strategies for Paying Off Loans Quicker

Below are some simple tactics you can use to pay your loans off faster.

  1. Pay extra each month. One of the easiest ways to pay off a loan earlier is by paying more than the monthly payment. For example, if your car payment is $178, try rounding your payment up to $200. While $22 may not seem like a lot, after a year, you will have paid an additional $264. Another option, instead of rounding up, is to set a dollar amount you know you can afford to pay in addition to your monthly payment – for example, paying an extra $50.

  1. Switch to biweekly payments. With most loans, you typically make a monthly payment – resulting in 12 payments per year. With bi-weekly payments, you make half of your monthly payment every other week. This option is beneficial because instead of making 12 payments, you actually make 26 half-payments each year - resulting in you making one full, extra payment per year. 
  2. Make an extra annual payment. Pick one month during the year that you will make an extra payment. The flexibility of this option allows you to choose when it’s convenient for you to make the additional payment. For example, you may time this payment when you receive your tax refund or a bonus at work. By making this one extra payment per year toward your loan’s principal, you’ll significantly lower the balance on your loan.


While paying off your loans is generally an intelligent tactic to consider, it requires discipline and planning. You definitely do not want to put a strain on your finances by committing to payments you cannot afford.

Take some time and make sure that you are doing what works best for you and your financial situation. At the end of the day, it’s more important to have a financially healthy budget rather than overextending yourself.

We’re Here to Help!

Whether you’re looking to adjust your payments to pay off your loan faster or just need some financial advice on the best strategy to take, we’re ready to help. There are many options to consider, such as biweekly payments or even consolidating loans.

Our team is ready to work with you one-on-one to find the best strategy to help you become debt-free quicker and affordably. Please stop by any of our convenient branch locations or call (949) 588-9400 to get started today.  

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.