Amortization for personal loans means paying off your balance in regular installments over a set period, with each payment covering both principal and interest. While this structure provides predictable payments, you can use specific strategies to pay off your loan faster and save on interest.
1. Make Extra Payments Toward Principal
Paying more than your required monthly amount—especially when you direct the extra to your principal—reduces your balance faster. This means less interest accrues over time, shrinking the total you’ll pay.
Tip: Even a small, regular extra payment (like $25–$50 per month) can significantly cut your loan’s life and cost.
2. Switch to Biweekly Payments
Instead of monthly payments, pay half your monthly amount every two weeks. You’ll make 26 half-payments (or 13 full payments) per year instead of 12, which accelerates your principal reduction.
3. Apply Windfalls and Bonuses
Put tax refunds, work bonuses, or any extra cash directly toward your loan. Lump-sum payments immediately cut the principal, lowering your future interest charges.
4. Refinance for a Lower Rate
If your credit has improved, refinancing could help you qualify for a lower interest rate or a shorter term, both of which reduce your total interest costs. Just watch out for any refinancing fees.
5. Avoid Skipping Payments
Some lenders offer to let you “skip” a payment, but this increases your interest costs and extends your repayment timeline. Always make payments as scheduled for the fastest payoff.
Key Takeaway:
Paying off your personal loan early isn’t just about larger payments—it’s about using smart strategies. Extra principal payments, biweekly schedules, and applying windfalls can all help you get out of debt faster and save money in the process.