There are ranging viewpoints on whether or not you should pay off your loan
in a lump sum or over time. Although the choice is individual, there are several
defining characteristics of each method. Deciding which method to use can be
hard, especially with pressure from lending companies that can lead you one
way or the other. To outline the two, we have created a guide that highlights
pros and cons of each of the two methods.
Paying Off in a Lump Sum
Paying off your loan in a lump sum may seem unbearable because of
the amount of money that needs to be put down, however it can end up saving you
thousands of dollars. This method sometimes isn’t an option for customers
because the lump sum is just too expensive. On the flip side, you will avoid
paying thousands of dollars in interest to the bank. It should be noted that
sometimes a lump sum method is not available based on your contract. Some
lending companies will charge you a fee because they are not making money
off of your interest free lump sum payment. It is very important to find out these
things before you get a loan. You should find a loan that allows you to pay
off your loan early if you can because it gives you much more flexibility.
Paying Off Over Time
Paying off your loan over time is the general norm for consumers.
It allows you to make relatively low monthly payments over time, increasing
your available income. Different lending companies have options on interest
rates, therefore you should find the one that suites you best. The one major
downside of paying it off over time is the fact that you will spend a lot of extra
money in interest. But unfortunately, as stated earlier, lump sum payments may be too high anyways. This option does not allow you the great flexibility of completely paying off the loan, but you can find the option that works best for you in regards to interest rates.
Make Sure You Choose the Best Option For You
As you can see, there are pros and cons to best options. The only way you can arrive at a good decision is by assessing where you are financially, and then viewing your options. Nothing good will come out of making a snap decision. Unfortunately, your situation may not leave you with many choices. Then you just have to make the best of what you have, and don’t get discouraged. It you take charge and really stay on top of things, everything will turn out for the best.
