How to Pay Off a Personal Loan Faster & Save on Interest
Paying off your personal loan ahead of schedule can save you a significant amount in interest payments and free up your financial resources. Here’s a step-by-step guide to help you repay your loan faster and reduce overall costs.
1. Understand Your Loan Terms
Before making extra payments, check the following:
✅ Interest Rate – Higher interest loans should be prioritized.
✅ Loan Tenure – The remaining repayment period determines how much you can save.
✅ Prepayment Penalties – Some lenders charge a fee for early repayment.
✅ Minimum Monthly Payment – Ensure you meet this before making additional payments.
📌 Tip: Contact your lender to ask about prepayment policies and confirm if extra payments go towards reducing the principal.
2. Make Extra Payments Whenever Possible
Paying more than the minimum amount helps lower your loan balance quickly. Here’s how:
✅ Pay More Each Month
- Increase your monthly installment amount to reduce principal faster.
- Example: If your monthly payment is RM500, try paying RM600 or RM700 instead.
✅ Make Biweekly Payments
- Instead of one monthly payment, pay half the amount every two weeks.
- This results in 26 half-payments per year (13 full payments instead of 12).
- Example: If your monthly installment is RM1,000, you pay RM500 every two weeks.
📌 Benefit: This method helps you pay off the loan faster without straining your budget.
3. Use Bonuses, Tax Refunds, or Windfalls for Loan Repayment
Whenever you receive extra income, such as:
💰 Annual bonuses
💰 Tax refunds
💰 Side hustle income
💰 Gifts or incentives
Use it to make lump sum payments toward your loan. Even one large additional payment can significantly lower the principal, reducing interest over time.
📌 Example:
- Loan balance: RM20,000
- Annual bonus received: RM5,000
- Paying RM5,000 directly to the principal reduces interest on the remaining RM15,000.
4. Refinance to a Lower Interest Rate Loan
Refinancing means replacing your current loan with a new one that has better terms.
🔄 Benefits of Refinancing:
✅ Lower interest rate = lower total repayment amount
✅ Potentially shorter loan tenure
✅ Reduced monthly payment
📌 Example:
- Existing loan: RM30,000 at 10% interest for 5 years
- Refinanced loan: RM30,000 at 6% interest for 4 years
- Savings: Lower total interest cost and faster loan payoff
Where to Refinance in Malaysia?
🔗 Compare refinancing options: https://www.imoney.my
5. Round Up Your Monthly Payments
Instead of paying an exact amount, round up to the nearest hundreds.
📌 Example:
- Monthly installment = RM860
- Pay RM1,000 instead (extra RM140 goes to principal).
- Over time, this significantly reduces the total repayment period.
💡 Pro Tip: Automate extra payments to ensure consistency.
6. Cut Unnecessary Expenses & Redirect Savings to Your Loan
Identify areas where you can reduce expenses and allocate savings towards loan repayment.
Common Expense Cuts:
❌ Reduce dining out – Cook at home instead.
❌ Cancel unused subscriptions – Netflix, Spotify, or gym memberships.
❌ Use public transport – Reduce fuel & parking costs.
❌ Shop smarter – Buy essentials in bulk and avoid impulsive purchases.
💰 Potential Savings:
- Cutting RM200 per month in unnecessary expenses = RM2,400 per year toward your loan.
7. Take a Side Job or Freelance for Extra Income
More income = More money to pay off loans faster.
💼 Side Hustle Ideas in Malaysia:
🔹 Freelancing (Upwork, Fiverr)
🔹 Selling items online (Shopee, Lazada)
🔹 Food delivery (Grab, FoodPanda)
🔹 Online tuition or tutoring
📌 Example:
- Earning RM500/month from a side job → Extra RM6,000/year toward loan repayment.
8. Switch to a Loan with No Early Repayment Penalty
If your current loan charges a prepayment penalty, consider switching to a lender that doesn’t charge extra fees for early repayment.
Banks in Malaysia That Allow Early Repayment:
✅ Maybank Personal Loan – No early settlement fees.
✅ Public Bank Personal Loan – Allows full settlement anytime.
✅ CIMB Cash Plus Personal Loan – No penalties for early repayment.
9. Consolidate Multiple Loans into One
If you have multiple loans, consolidating them into a single lower-interest loan makes repayment easier.
📌 Example:
- You owe RM10,000 (12% interest) + RM15,000 (15% interest).
- Consolidate both into a single loan with 8% interest.
- Your monthly payment is lower, helping you clear the loan faster.
🔗 Check loan consolidation options in Malaysia: https://www.comparehero.my
10. Avoid Taking on New Debt While Repaying Your Loan
🚫 No new loans or credit card debts!
🚫 Avoid financing unnecessary purchases (cars, gadgets).
🚫 Focus on clearing your existing debt before borrowing more.
📌 Why?
- Every new loan adds to your financial burden.
- Interest payments keep increasing if multiple debts accumulate.
Final Strategy: Snowball vs. Avalanche Method
There are two repayment methods to clear your loan efficiently:
🔵 Snowball Method (Motivational Approach)
1️⃣ Pay off the smallest loan first (regardless of interest rate).
2️⃣ Once cleared, use that money to pay the next smallest loan.
3️⃣ Repeat the process until all debts are cleared.
💡 Best for: People who need small wins to stay motivated.
🔴 Avalanche Method (Most Cost-Effective)
1️⃣ Focus on paying off the highest interest loan first.
2️⃣ Make minimum payments on other loans.
3️⃣ Once the highest interest loan is cleared, move to the next highest.
💡 Best for: Saving the most money on interest.
📌 Example:
- Loan A: RM5,000 (18% interest)
- Loan B: RM10,000 (12% interest)
- Loan C: RM15,000 (6% interest)
✅ Using the avalanche method, clear Loan A first, then Loan B, and finally Loan C.
Final Thoughts
🚀 Recap of Steps to Pay Off Your Loan Faster:
✔ Understand your loan terms & check for prepayment penalties.
✔ Make extra payments (monthly, lump sum, or biweekly).
✔ Use bonuses, tax refunds, or side income for loan repayment.
✔ Refinance or consolidate loans for better interest rates.
✔ Cut unnecessary expenses and increase income sources.
✔ Avoid new loans and prioritize existing debt repayment.
💡 The faster you pay off your loan, the more money you save on interest! Start applying these strategies today to become debt-free sooner. 🚀💰
