UAE: Paying off your loans early? It isn’t always cost-effective, here’s why

UAE: Paying off your loans early? It isn’t always cost-effective, here’s why

Dubai: Paying off your debt faster will help reduce the total interest charges, and this in turn means you spend less time in debt. So far so good. But if you are nearing the end of your loan term and if there are charges for early repayment, will paying off your loans early be truly cost-effective? “When in debt, the sensible move is to pay off any and all debts as soon as possible, right? Not always,” said Dubai-based debt restructuring and financial planning consultant Rupesh Naish. “In some cases, paying a debt off early doesn't save you all that much money.” Let’s say you buy a car for the price of Dh25,000, and you borrow Dh20,000 at an interest rate of 3 per cent on a 60-month loan. That could mean more than Dh1,500 in interest payments over the course of five years. If you’re paying back your loan early, ideally, you are to save in interest costs. The logic is straightforward – the sooner you wipe out your loan, the more money you'll save in interest payments, and depending on the balance, this could mean hundreds or even thousands of dirhams in savings. But often times your savings