If you took out a personal loan to cover a big expense or consolidate high-interest debt, you’re not alone. According to Credit.com, an estimated 27 million Americans took out or carried personal loan debt in 2022.

While personal loans are a great tool to get your personal finances in order, it’s important to learn how to manage your loan. Making monthly loan payments on time, paying the principal on your loan sooner, and other financially savvy moves can help you save money on your personal loan balance in the long run.

A step-by-step guide to managing your personal loan

This guide can help you manage your personal loan payments, keep your interest rate reasonable, and ensure more money stays where it belongs — in your bank account.

Step 1: Build loan payments into your budget

Once you’ve been approved and received the funds for your personal loan, sit down and build the loan payment into your monthly budget. Don’t have a budget? Even those without much financial know-how can get started with this resource from the Federal Trade Commission for making a budget.

Before the first payment comes due, decide where you’ll find the extra money to meet this monthly expense. Consider whether you’ll need to cut out some types of spending to free up financial bandwidth.

Step 2: Don't forget to set up autopay

Personal loan lenders usually ask if you want to set up automatic payments before the ink is dry on your loan contract. That’s because auto-pay ensures you’ll make on-time payments, which benefits both you and the lender and promotes a stress-free lending experience.

In fact, your credit history of on-time payments is the biggest factor in determining your FICO score. Some personal loan lenders also offer a discount for setting up automatic payments through banking apps or your debit card.

This discount is usually applied to your interest payments and requires you to provide bank account information so the funds can be automatically deducted every month, ensuring you’ll never have a missed payment.

Step 3: Read your personal loan agreement carefully

It pays to read the fine print of your loan terms carefully. While you may have ambitious plans to pay your loan sooner, a few lenders charge a prepayment penalty.

Although the Consumer Financial Protection Bureau says prepayment penalties are more common with a mortgage, you should look for disclosures about prepayment penalties in the repayment terms section of your personal loan agreement.

Even with prepayment fees, which can be flat fees, interest-based, or a percentage of the balance, it may still be worthwhile to pay off your loan early. Do the math on what you’d be charged in penalties compared to how much you’d save on interest over the duration of the loan term.

5 ways to pay your personal loan off faster

To pay off your personal loan faster, there are ways to trim a few months from your loan’s term.

1. Add a little extra to your monthly payment

Whether you only kick in a few dollars or round up to the nearest hundred, paying a little extra every month makes a big difference. This is because paying off the entire loan amount early means you pay a smaller amount of interest.

For instance, if you’re repaying a $10,000 personal loan for the next five years with an average interest rate of 9.5%, paying $100 more every month shortens your repayment period by 22 months and saves more than $1,000.

Read more: Do you have to report a personal loan on your taxes?

2. Make a lump sum payment

If you’ve stumbled into a sudden windfall or a big bonus at work, put that large chunk of cash toward paying off your loan. If you’re going to make one lump-sum payment or installment, ask your lender to use it as a principal-only payment.

Principal, according to the Consumer Financial Protection Bureau, is the money that you originally agreed to pay back. Interest is the cost of borrowing the principal.

Some lenders don’t allow or don’t automatically offer principal-only payments, so you’ll need to ask to see if you’re eligible. It’s also crucial to make sure your windfall isn’t better used paying down credit card debt or other debt that’s charging a higher interest rate.

3. Schedule biweekly payments

Lenders sometimes allow splitting one monthly payment into two equal bi-weekly payments. While this doesn’t seem like it would help you pay your loan off faster, it actually equates to an extra payment every year.

As you can see, extra payments — however you make them — not only shorten your loan term significantly but also can save hundreds in interest by shortening the repayment period.

4. Look for refinancing opportunities

Sometimes you're between a rock and a hard place and you take the interest rate you can get, not the interest rate you want. However, with a good credit profile or improved credit score, you might eventually be able to refinance your personal loan at a lower interest rate.

Keep an eye on your credit report and when the time seems right, shop for refinanced loan rates with multiple lenders. Even dropping a point or two of interest can mean keeping hundreds of dollars in your pocket as long as the refinancing fees don’t eat up all your savings.

Read more: What credit score do you need for a personal loan?

5. Consider consolidating loans

If you have multiple personal loans or are carrying a high-interest credit card balance on more than a few cards, consider consolidating them into a single debt consolidation loan to minimize the risk of missing a payment.

Debt consolidation is a popular way to use personal loans but as with refinancing options, you’ll want to make sure the new loan doesn’t have an origination fee or other fees that would take a big bite out of your potential savings.

Personal loan management FAQs

1. Is it better to pay off my personal loan early?

As a general guideline, paying off your personal loan early will save money because, even though the principal or the original loan amount stays the same, you’ll pay less interest.

However, you’ll want to factor in considerations like prepayment penalties and other types of high-interest debt you’re currently carrying to decide if paying off your personal loan early is the right financial decision for you.

2. Can I lower the monthly payment on my personal loan?

To lower your monthly payment, you can secure a lower interest rate through refinancing or extend your repayment period by consolidating into a new loan. However, if refinancing isn’t an option and you’re struggling to make payments or find yourself in a difficult financial situation, contact your lender and see if they can adjust your personal loan terms.

3. What happens if I don’t make payments on my personal loan?

Most personal loans are unsecured, which means you probably didn’t have to put up collateral to get the loan. So while you won’t lose any assets if you stop making monthly payments, the entire balance of the loan, including late fees, will go into default and drastically hurt your credit score. If you do have a secured personal loan, the lender can seize your assets if you fail to make loan payments.

Read more: What happens if you default on a personal loan?

4. Will paying off my loan early hurt my credit?

Paying off debt affects financial metrics like your credit utilization ratio, debt-to-income ratio and credit mix, all which help determine your credit score. While early loan repayment is ultimately a big positive, you might see a temporary dip in your credit score. But don’t worry – it will rebound within a few months.