Prepaying an Unsecured Debt Consolidation Loan: Can (and Should) You?

An unsecured debt consolidation loan can help pull you out of financial trouble if you use it at the right time and in the right way.  Prepayment of an unsecured debt consolidation loan refers to making extra payments toward the principal amount of the loan, thus avoiding extended interest payments, thereby saving you money in the long run.

What is an Unsecured Debt Consolidation Loan?

An unsecured debt consolidation loan helps those in credit trouble by merging all of one’s debt into a single payment to a single lender.  This can help you in terms of debt repayment time and the amount of principal that you will eventually repay on the loan.  By having only one bill a month instead of four or five or even more, you will benefit from the organization inherent with reducing the number of bills.  Your finances will also benefit as you will pay interest on only one loan instead of on the number of bills you previously were paying on a monthly basis.  Basically, the lender of an unsecured debt consolidation loan pays all of your monthly bills and replaces them with one bill with one interest rate that you owe solely to the lender. 

Can You Prepay an Unsecured Debt Consolidation Loan?

While rules regarding prepayments vary somewhat from lender to lender, you typically will have the option of prepaying an unsecured debt consolidation loan, but you may have to pay a fee.  Prepayment fees are fairly common and are instituted by lenders of variously types of loans, including unsecured debt consolidation loans.  These fees are usually small and manageable.  It would be worthwhile to speak to each potential lender about their specific fees and how prepayment will affect your overall debt. 

The Pros of Prepaying

Prepaying an unsecured debt consolidation loan means that you will finish owing money on all of the debt associated with the loan sooner, which is certainly a good thing.  By prepaying, you make more payments each month or year than the lender requires you to make as the minimum for repayment.  This means that your overall interest payments will decrease tremendously, even after you factor in the possible prepayment penalty that may be levied by the lender.  Prepaying an unsecured debt consolidation loan could save you thousands of dollars in interest payments and is certainly worth looking into if your finances can support it.

The Cons of Prepaying

Is there ever a situation where prepaying an unsecured debt consolidation loan is not a good idea?  Yes, these situations do arise, and knowing if your specific case is one of them can help you decide if prepayment might not be the best idea for you.  If you plan to prepay a certain amount extra, on top of the minimum payment every month, you will need to make sure that you actually have the money available to do this.  Do not make prepayments with money that does not exist.  If you cannot realistically come up with the money, don’t force your assets to crunch numbers that aren’t viable.  The whole point of a debt consolidation loan is to help bring you out of a precarious financial situation; don’t put yourself back into one!


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