Advance balance of a loan Yes or no?

  • Uncategorized

One of the key questions you have to ask yourself when taking a loan is whether it has the option of the anticipated balance. Since you can enter a “tasty brisita” of some bonus or incentive with which you want to settle your debt. However, you may not be sure to do so. In Rexi  I tell you about whether paying off this loan in advance is worth it or not.


What is the anticipated balance?

money balance

Although it seems weird, there are people who have no idea what the anticipated balance is. In fact, in my consultation I see people, whom I propose is a possibility and they look at me as if I had asked them for the explanation of the roundness of the earth; and to avoid that, just in case, I explain.

The anticipated balance is to pay before the end of the agreed time, the amount of the debt. That is, if you had to pay the bank in 3 years, by doing so before, you anticipate, doing so in less time.

And why is this important? Because in the context of the negotiation that you have with the bank you should know if doing so implies a cost. Remember that the bank’s raw material is money and you have to earn it just as a baker must take out the flour he buys for bread.

And there are banks that, although you can pay off your loan in advance, penalize you for doing so. This may vary from one bank to another, but in a nutshell the cost is usually a percentage of interest charged to the amount payable.


Is it worth paying early?

Is it worth paying early?

Starting from what is anticipated balance and what it could imply, the logical question is whether it is worth it or not. And the simple and simple answer is: It depends.

It depends on different factors, such as loan time, amount to be paid, interest rate, penalties, etc. In other words, giving you a closed answer to something that can be so variable is not easy.

However, the common element to determine how effective it can be to pay off a loan in advance, in case there are no penalties, is the distance between the moment you are up to the time of the loan closing.

To make it simpler, to the extent that you are closer to the final date, it is less worth paying off the loan early, because financial institutions charge interest at the beginning of the loan and pay the capital later.

Therefore, paying off a loan that has 3 months left to one that has 18 months left is not the same; For a very simple reason, you will not be saving much money. You will have practically paid all the interest of the financial debt you assumed.

In that sense, your analysis to determine this decision is to see how much you are earning with this anticipated balance, so that you can weigh if this movement favors your finances.

Leave Your Comment Here