I’m thinking about paying off a $5K loan at 2.5% to be debt-free and wonder if that’s a bad financial move
From Yahoo Finance: 2025-04-06 16:30:00
Paying off a $5,000 loan with a 2.5% interest rate early may seem tempting, but understand the terms and consequences first. Saving money on interest can benefit your financial goals, but beware of prepayment penalties that could negate your savings. Consider other ways to improve your financial situation before making a decision.
Paying off loans early can boost creditworthiness by lowering your debt-to-income ratio, making you more eligible for competitive mortgage rates. However, there are factors to consider, such as potential prepayment penalties and the impact on your credit score. Explore all options before deciding how to use your money wisely.
Unexpected emergencies could arise, making an emergency fund essential. Without one, you may end up taking out a higher-rate loan, leading to more interest payments. Investing your money wisely may be a better option to earn higher returns than paying off the loan early. Consider seeking advice from a financial advisor to make informed decisions.