What are the best ways to pay off a personal loan?

Once you have a personal loan, you’ll have to make monthly payments on the principal, interest and fees. Because of the way personal loan interest works, paying your loan off early helps you save money. A solid budget, automatic payments and even additional payments to your loan can make it so that your loan balance is repaid more quickly.

How to pay off a personal loan faster

The general approach to paying off a personal loan as quickly as possible is to set a budget and make more frequent payments. If you have a significant amount of high-interest debt, including personal loans, it may also be worth considering debt consolidation or refinancing.

Create a budget

Taking on a loan payment means adding to your monthly expenses. If you need to make space for the loan payment in your budget, consider minimizing spending on unnecessary expenses, such as:

• Food delivery or takeout.
• Streaming or subscription services.
• Gym memberships.
• Leisure travel.
• Alcohol.

Set up autopay

When setting up payments for your personal loan, you often have the option to establish automatic payments. This means the lender will automatically withdraw your payments from a specified bank account or credit card at the same time each month.

Setting up autopay saves you the trouble of remembering to make the payments month after month. Also, many lenders offer an autopay discount that reduces the interest rate on your loan by 0.25 or 0.50 percent.

Speed up your repayment timeline

Paying any extra money towards your personal loan will help you pay off your debt faster. Additionally, paying off the loan early means you won’t pay as much interest and the loan will cost you less — as long as there aren’t any prepayment fees.

Add money to your monthly payment

Making slightly larger monthly payments is a surefire way to see your balance decrease faster. It will also reduce the amount of interest you pay. It doesn’t matter how large or small your extra payment is. Even adding a small amount to your monthly payments can make a significant difference.

Make bi-weekly payments

Some lenders will allow you to set up bi-weekly payments instead of making one monthly payment. Your payment amount will be halved and charged every two weeks. While it may not seem like you’re doing much, adding an extra payment each year can help you reduce your total interest accrual.

Make a large, one-time payment

A lump sum is a larger payment made once and is generally much bigger than your normal monthly payment. If you receive an unexpected chunk of change, like a raise or a large tax return, making a lump sum payment may be financially and psychologically beneficial.

When you make a lump sum payment, your monthly payment amount will stay the same, but it will reduce your outstanding balance, which in turn will reduce the interest you pay over time.

Consider debt consolidation

Consolidating multiple high-interest loans with a debt consolidation loan — especially one with lower interest — can make your debt more manageable.

Dvorkin advises consolidating if you have multiple credit card debts and are struggling to pay them off due to high interest. But even if you can keep up, debt consolidation has benefits worth considering. It simplifies your payments and may boost your credit score by eliminating revolving debt.

However, if you won’t save money, consolidating might not be the best strategy.

Before committing, calculate the difference that consolidating could make to your monthly payments.

When not to consolidate

If the debt consolidation loan comes with a higher interest rate than your current accounts, you won’t save any money, and it likely won’t make sense to consolidate. To ensure you’re getting a competitive rate, prequalify for a personal loan with as many lenders as possible.

Origination fees and other charges can reduce the overall value of your new loan. Read the fine print before signing a new loan agreement to ensure you’re not taking on hidden fees.

Refinance your loan

Refinancing a personal loan involves working with a new lender to obtain a loan to pay off the remaining balance on your existing loan. Ideally, when doing this, you obtain a lower interest rate or more favorable payment terms. Much like consolidating, refinancing can save you money by reducing the amount you pay in interest over the life of the loan.

However, if the fees associated with refinancing are high, they will reduce the value of taking this step, making it less worthwhile. In addition, you may pay more interest over time if the repayment term is longer.

Calculate the amount you will spend on the remaining payments on your current loan versus the new loan to determine if the cost of refinancing is worth it.

Is now a good time to refinance a personal loan?

The Federal Reserve has repeatedly raised rates throughout the last two years to cool the inflated economy. Despite a lack of rate hikes in 2024, as of April 2025, the current average personal loan rate is near an all-time high at 12.36 percent.

The Federal Reserve opted to drop its target rate in September, but this relatively small move is unlikely to improve personal loan rates significantly in the near term. Due to the high-rate environment, borrowers who got a good rate on their existing loans are unlikely to find better rates now. However, if the interest rates on your existing loans are high and you prequalify for a lower rate, it may be worth it.

Alternative ways to save money on your loan

If you don’t qualify for the traditional management methods or don’t wish to repeat the borrowing process, there are other ways to save money on your personal loan overall. the primary method will be to talk to your lender. Ask if you can adjust your terms or get a lower interest rate. “On-time payments, a good credit history and other factors like this can help in this process,” Dvorkin says.

You may also want to consider a balance transfer credit card. If you can pay off your balance during the card’s interest-free promotional period, you could save a chunk of change. You’ll typically have to pay a 3 percent fee on each balance you transfer. And, if you still owe when the promotional period ends, you’ll be charged the credit card’s interest rate.

Bottom line

There are multiple ways to manage a personal loan well and save money along the way. Remember that no amount is too small — any extra amount you can put toward your monthly payments will be beneficial. Consider all of your options throughout the entirety of your loan.

You may not be able to consolidate or refinance right now and score a lower rate, but that doesn’t mean the method won’t make sense in the future. As your financial and credit health evolves, so do your repayment methods. Keep your options in mind until the day you pay the balance off for good.