When you apply for a bank loan, the bank will run a credit check. Your credit score will likely take a small dip, however as long as you pay back your loan on time, your score should go back up in a short amount of time. That said, if you don’t repay the loan on time, your credit score will likely drop.
Paying off a loan early can decrease your liabilities, your debt-to-income ratio and the amount of interest you pay overall, putting you in a stronger financial position. However, some personal loans carry a prepayment penalty fee, so before paying off your loan early, check your loan terms and agreements carefully.
Compared to other personal loans, banks often have stricter criteria when it comes to determining who qualifies for a loan. If your credit score is low or you don’t have critical application requirements, such as proof of income, it can be difficult to secure a bank loan.
If you don’t pay off a loan, you will eventually go into default. Your credit score will drop, there will be a negative mark on your credit report for many years and you could be up against a collection process that can garnish your wages or seize secured assets. If you’re facing financial difficulties, reach out to your lender to find solutions.
