Is It Possible To Overpay Loan Payments?

Is it possible to overpay loan payments? If you have some extra money or come into a sum of cash, you might be wondering if it is possible to put it toward your loan in order to pay it off quicker. Whether...

Whether you have a mortgage, an auto loan, a personal loan, or a line of credit, you will have payments that need to be made in specific amounts over a specific period of time. Usually the payments are a combination of whatever principal you borrowed along with interest. Just because your statement tells you what your payment should be does not always mean that you are limited to that payment. If you have some extra money or come into a sum of cash, you might be wondering if it is possible to put it toward your loan in order to pay it off quicker. Anne Reed of Acceptance Mortgage in Sparta, New Jersey, said that it is possible.

"Yes it is possible to make over the minimum monthly payments," Reed said. "The borrower should be careful to be sure that their particular state does not impose prepayment penalties should a mortgage be paid off before the term of the loan agreed upon."

Prepayment penalties usually disappear after a set amount of time. Lenders want to make sure they will make some money on interest before you discharge your loan.

Some banks may help you to overpay your loan with special programs.

"There are specific programs aimed at doing just this such as bi-weekly payments," Reed said.

A bi-weekly payment will help you to pay off a loan faster. Instead of 12 payments, you will essentially be making 13. This gives you a little extra payment each year.

When you overpay on your loan you should always be sure to specify that the extra money is to go towards principal only. Unless you specify, your lender can apply the extra money toward interest, put it toward your next payment, or put it into your escrow account if you have a mortgage. This will not help you to pay off your loan any more quickly. You can specify this by writing on the memo line of your check "excess to principal." Some mortgage coupons will have an area where you can designate your extra payment to go to principal.

There are many loan overpayment calculators on the internet that can show you exactly how much faster your loan will be paid off with the additional payments. All you need to do is enter your payment and overpayment information and it will give you the number of years it will take to pay off the loan if you are consistent with your overpayment. Putting just a small amount toward your payment each month can reduce the length of your loan by a surprising amount, and it makes great financial sense as you will be saving money on interest. Paying off loans early may even be a better financial move than putting your money into a savings account.

If you have extra money and want to put it toward your debt, there is no better place for it. The faster you bring down your principal, the more you will save on interest, and the faster you will be debt-free. You can pay off your car, home, or credit loans in a shorter time and use the money to put toward retirement savings.

© High Speed Ventures 2011