When Is Overpaying A No-Guarantor Loan Beneficial?

You wish to buy a car, but the pending dues prevent you from applying for a loan. You have been paying on a no-guarantor loan for 6 months, but you still have a long way to go. It tests your patience, and you think, “When will I get freedom from the loan payments?” The struggle is real, as you cannot bear paying any more on the loan

What if you can overpay and get rid of it now? It helps you save money on interest costs, monthly payments, and total amount payable. You can put aside the money you save for a loan deposit to provide for the car loan. Easy? Isn’t it? 

Overpaying the loan may prove attractive to get debt-free. However, it may not be ideal in every situation. You must reconsider every aspect, especially with bad credit blues. The blog lists the situations where overpaying a high-interest loan like a no-guarantor loan is ideal. Individuals having one may benefit from the article.

What do you mean by overpaying a loan?

Overpayment is when you pay more than the agreed-on amount on a loan. One may consider paying more than the decided amount in some situations. It could be an improvement in income, high business profit or a windfall cash. 

Precisely, an individual pays extra in the situation of excess cash availability. This initiative helps one bring down debt liabilities. It is the pathway to save more money on interest, total amount, and monthly payments. Additionally, it prevents one from defaulting on the loan and paying the penalties.

When must you overpay a no guarantor loan?

If you must repay a loan early, discuss it with a loan provider. Only a few agree to the customer’s plea to pay extra on the loan. However, you must explore the chances to overpay.  It may help you improve your finances from scratch.

A guarantor loan implies competitive interest rates and terms. It makes the loan costly and challenging to pay on time. So, check whether your creditor allows you to pay the dues early. Usually, you can overpay only a portion instead of the complete loan. If he provides such a facility, consider the following aspects:

• Have extremely bad credit

Yes, paying more than the agreed loan instalment amount is beneficial for individuals with poor credit scores. You may have got very bad credit loans with no guarantor, from a direct lender online. Individuals with consistent income and low amount requirements may qualify. However, paying it timely is equally important. Identify the possibilities to pay the dues by contacting the creditor.

If he agrees to it, decide how much you can pay comfortably. Don’t overpay without confirming it from the creditor. Otherwise, it may lead to unexpected penalties and non-repayments.  Overpayments decrease liabilities on your credit report. It thus helps you boost the credit rating drastically.

• It saves good money on interest

One must identify the total amount one can save by overpaying. One can use an overpayment calculator to know that. Usually, it is advisable to pay off a loan when it saves you a whopping amount on interest.

It means if you still have 1 or 2 years of payments left, paying early may help. You pay the dues of the remaining 2 years in just one month. So, this eventually proves a financially friendly approach.

Here is how your loan payments may look after overpayments:

	Without Overpayments (in pounds)	With overpayment (in pounds)	Difference (in pounds)
Regular payments	626.64	626.64	0.00
Total payments	36	13	23
Total payment amount	22,558.81	8,146.32	14,412
Total interest paid	2,558	936	1,622
Total overpayment amount	0	12,789	12,789
Number of repayments	0	13	13

 

• You can pay the amount comfortably

Usually, the loan provider confirms whether the customer can manage other expenses correctly. Not having sufficient cash availability may affect other critical goals. It could be rent, medical bills, utility bills, groceries, etc.

You get an amount that you must pay to repay the dues early. Check whether you can repay the amount comfortably. Identify monthly liabilities, payments and decide how much you can manage. 

When is overpaying a no-guarantor loan a bad idea?

Yes, you should know the pros and cons of overpaying a loan. On one hand, it may help you save money on interest, total payments, and monthly instalments. Whereas, on the hind side, it may prove the greatest financial mistake. It may affect the no-guarantor loan that you took to meet requirements individually. Here is when you must avoid paying some amount early:

1. The loan term is about to end

One overpays usually to maximise their savings on interest. However, if the loan term is nearing end, you may not benefit from overpayments. The savings will be less than what you expected. Thus, it may help you in no way.  For example, if you have only 3 months to end the agreement, don’t overpay. Instead, you may consider one if you have at least 12 months to go on the loan.

2. You don’t have an emergency fund

An emergency fund is a 6-month strict savings account for extremely poor financial conditions. One saves a fixed amount for 6 months consistently. However, you cannot tap the account or withdraw funds frequently.  

If you don’t have an emergency fund, then you should avoid overpaying on the loan. It is because paying the maximum of your savings towards the loan payment leaves you with nothing. It may hamper finances in case of cash emergencies.

However, most individuals seeking to overpay a loan have CCJ issues. It restricts one from borrowing cash. But you can check CCJ loans with no guarantor from a direct lender in the UK market.  It helps you get basic cash despite a low credit score. However, the amount you get here is less. You can thus decide the figure according to your loan purpose and affordability.  Make sure that you can repay the dues timely.

3. High early payment charges

If the early payment charges exceed the interest you save, then paying early would not help. What could be better when you must pay more to get free from the loan?

Thus, always consider whether the interest savings are worth paying the huge costs for.  Always identify what you will do by paying the no guarantor loan early. Is achieving the goal more important than saving money on charges? If not, then you must avoid it.  

Bottom line

Overpayment is paying more than the decided amount on the loan. Most individuals consider this strategy to get free from the loan quickly.  It reduces the total amount to pay, interest costs and the monthly instalments. Accordingly, you pay significantly less and save a larger amount eventually. However, avoid paying one if the charges to pay the loan are higher than the money you save.