A lump sum repayment is a large one-time payment made toward your loan’s principal balance. Unlike regular monthly, fortnightly, or weekly repayments, a lump sum allows you to pay off a significant portion of your loan in one go, reducing both the principal and the amount of interest you’ll need to pay over the life of the loan.
By making a lump sum repayment, you reduce the outstanding loan balance, which means the interest is now calculated on a smaller amount. This can lead to significant interest savings over time, as well as shortening your loan term.
What Types of Loans Allow Lump Sum Repayments?
1. Home Loans:
Many home loans, particularly variable-rate loans, allow you to make lump sum repayments without penalty. By making a lump sum repayment on a home loan, you can reduce the total interest payable and potentially pay off the loan much earlier.
2. Personal Loans:
Some personal loans allow lump sum This can help you get out of debt faster and reduce the amount of interest you pay over time. However, check with your lender, as some personal loans may have restrictions or penalties for early repayment.
3. Car Loans:
Car loans can sometimes offer lump sum repayment options, particularly if you’re on a variable rate. If you receive a bonus or windfall, making a lump sum repayment on your car loan can save you from paying as much interest over the loan’s term.
4. Business Loans:
Lump sum repayments can also be beneficial for business loans. If your business experiences a financial windfall, paying down your loan early can help free up cash flow for future investments or reduce ongoing expenses related to interest payments.
5. Investment Loans:
Lump sum repayments can be made on investment loans, particularly if the loan is structured as an interest-only or variable loan. Reducing the loan balance can save on interest costs and improve your overall return on invetment.
Example 1
With a $400,000 home loan at 6% interest over 30 years, a lump sum repayment of $30,000 made after 5 years would save you $88,425 in interest and cut your loan term by 4 years and 1 month.
Please note: The results provided by this calculator are estimates only and should be used for informational purposes. Always consult with a financial expert before making any decisions based on the results.
Use our Home Loan Offset Calculator to get a personalised estimate and find out how an offset account could benefit your financial future. For expert advice on mortgage and offset accounts, contact us today.
Caspian finance is a Mortgage company. We work with you to ensure you understand your loan options and know exactly how much you can borrow.
