The specific answer is "it depends":
1. Does the loan have a prepayment penalty? Some loans assess a fee if
you accelerate payback of princpal. The stiffer the prepayment
penalty, the more likely you are to let the loan run to maturity.
2. What is the interest rate on the loan? When you pay back a loan,
you're making an investment that will pay you a set return. For
example, if you pay off $100 credit card debt that carried a 20% APY,
you "make" 20% return on the money you use to pay it back today. A 20%
guaranteed return on investment is nothing to sneeze at. On the other
hand, paying back a Federal student loan may only return 4%.
Generally, the higher the interest rate, the more likely you are to
want to pay it back as soon as possible. |
