Cash loans are generally an expensive form of credit and anything you can do to save money on the total cost should be considered.
Being debt free sooner is also an objective worth pursuing.
But is it always worth paying more on your cash loan?
If your lender charges an early repayment fee (Gusto Cash does not) then your efforts to pay extra could be eaten up in extra costs anyway!
In this article, we’ll explore the financial benefits of paying extra on your cash loan, and small habits that can help you achieve it without breaking your budget.
Benefits of Early Cash Loan Repayment
Reduce the Cost of Credit
A MACC personal loan accumulates interest on the outstanding balance until it is repaid in full.
The longer the repayment term, the greater the total cost of credit. This can be significant in cases where the loan runs for the full two year maximum period.
If you make additional contributions and aggressively pay down the principal balance, you can save a lot of interest on the progressively lower balance.
Increase Your Credit Score
Your credit score is a reflection of your past behaviour in managing credit.
If a lender participates in the Comprehensive Credit Reporting (CCR) system the current status of your loan will be reported to a credit bureau each month.
By staying ahead of your repayments you prove to future lenders (such as mortgage providers) that you are a responsible borrower.
A higher credit score can provide you with more options and cheaper interest rates next time you apply for finance.
Free Up Your Cash Flow
Once you have repaid the loan in full, you instantly get that extra cash back in your pocket every single month.
Aside from the extra money, there is a massive unquantifiable peace-of-mind aspect that comes from not having the pressure of loan repayments coming out on payday.
The faster you kill the debt, the faster you get your total income back.
Extra Loan Repayments Comparison
Let’s look at how much you can save by adding just $100 extra per month to a standard MACC cash loan.
Consider a $2,500 MACC personal loan at a maximum 48% p.a. interest rate.
- Scenario A (Paying the Minimum): You pay exactly the minimum required amount each month for the full 24-month term.
- Scenario B (Paying an Extra $100/month): You increase your direct debit to add an extra $100 to every monthly payment.
| Metric / Feature | Scenario A: Paying the Minimum | Scenario B: Paying an Extra $100/Month |
| Loan Term | 24 Months | ~12 Months |
| Monthly Repayment | ~$164 | ~$264 |
| Total Interest Payable | ~$1,436 | ~$705 |
| Total Cost of Loan | $3,936 | $3,205 |
| The Result | You pay the full interest over 2 years. | You save $731 in interest and finish a full year early! |
If you can manage to pay an extra $100 a month (just $25 a week), you will save hundreds of dollars.
Even better, you will be completely debt-free a full 12 months early!
Habits to Pay Off Your Loan Faster
Sticking with the MACC loan example, the first repayment you make will be heavily weighted towards the interest component.
Anything additional you pay has an immediate difference on the principal outstanding. The benefit of regular contributions will compound over time if you stay consistent.
Here are some small financial habits that will not impact your budget much, but can add up to big savings.
Round Up Your Payments
What if you simply rounded up your $164 repayments to $180 or $200?
You will barely notice the extra few dollars leaving your account, but over a 24-month term, that consistent chipping away at the principal reducing your total interest.
Bonus Payments
If you earn bonus payments at work, chances are your weekly budget doesn’t rely on them as heavily as your base salary.
Rather than heading straight to the pub or shopping on bonus day, pour that money directly into your cash loan to get ahead.
Tax Refunds
An extra lump sum payment of $1,000 made six months after the loan was opened will save you hundreds of dollars in future interest and see the loan paid off several months sooner.
Frequently Asked Questions
Why not just select a shorter loan term to begin with?
You can select a shorter loan term (like 6 or 12 months) from the start. However, you are then legally locked into those higher mandatory minimum repayments. If you have a bad week, you still have to find that large payment. By selecting a 24-month term but voluntarily treating it like a 12-month term, you get the savings benefit plus the safety net of dropping back to the lower minimum payment if an emergency hits.
Do I have to pay interest on the full contracted loan period?
No. Personal loan interest is calculated on the reducing balance. If you pay off a 24-month loan in exactly 12 months, you are only charged interest for the 12 months you actually held the debt.
Are there early repayment fees?
Not with Gusto Cash. We believe you should be rewarded for getting out of debt early, so we charge absolutely zero early exit fees or penalty costs. If you have a cash loan with another provider, you will need to check your contract, as many short-term lenders do charge a break fee.
The Final Word
There is no magic bullet to pay off your personal loan faster, you just have to make additional repayments whenever you can.
While this is not always as easy as it sounds, the benefits of doing so are substantial in the long run.
If you are looking for a flexible MACC personal loan between $2,001 and $5,000 that never penalises you for getting ahead, the team at Gusto Cash is ready to help.
