Why You Should Advance Your Loan Due Date

When it comes to loan repayment, borrowers may have the option to advance their loan's due date. This means that by paying more than the required monthly payment, you can push back the next payment date by a month. While this can provide flexibility and peace of mind, it is not always the best option financially. Advancing the due date can result in continued interest accrual, leading to higher total loan costs over time. It is important for borrowers to understand how their payments are allocated and to consider making principal-only payments to reduce the loan balance and minimize interest costs.

The do not advance due date option

When you make an additional payment to pay down your loan faster, you may see the "do not advance due date" option. This option specifies that you want to apply the extra payment directly to the principal. If you do not select this option, your lender will apply your extra payment to late fees and accrued interest and then toward future payments (including interest).

For example, if you were to pay $600 and advance the due date, then you are paying $500 towards principal and $100 towards interest but a payment is due the following month. If you don't advance the due date, you effectively pay $400 towards principal and $200 towards interest (two months' payments), but your payment is pushed out an additional month.

Choosing the "do not advance due date" option means that your lender will apply the extra payment directly to the principal balance after covering any unpaid accrued interest for the current month. This means your extra payment will be used to reduce the principal balance immediately rather than advancing the due date. For instance, if you make an extra $400 payment on a $10,000 loan with a 6% APR and a regular monthly payment of $200, the extra $400 is applied directly to the principal, and you will continue making regular monthly payments as scheduled.

The "do not advance due date" option is beneficial if you want to reduce the principal balance of your loan as soon as possible. This option can be especially useful if you have the budget for extra student loan payments, as it can potentially save you thousands of dollars in interest. Additionally, if you are ever between jobs or low on funds, you can use the free" forbearance option that comes with this choice since the due date will be advanced.

How to avoid advancing your due date

When making an additional payment to pay down your loan faster, you may see a "do not advance due date" option. This option allows you to specify that you want to apply the extra payment directly to the principal amount of your loan.

If you do not select this option, your lender will apply your extra payment to late fees and accrued interest and then toward future payments (including interest). This means that interest will continue to accrue on your loan, and you may end up paying more interest over the life of the loan.

To avoid advancing your due date, it is important to review your loan agreement carefully and understand the terms and conditions. Here are some steps you can take:

• Contact your lender or loan servicer before making any extra payments to ensure that they are applied to the principal and not to advance the due date.
• Review your loan agreement to understand the specific provisions regarding early payments and due date advancement.
• Set up automatic monthly payments and make extra payments whenever possible. This will help you stay on track with your regular payments and avoid the need to advance the due date.
• Consider other options, such as lowering your monthly payments or exploring eligibility for federal loan repayment plans, if you are unable to make payments as scheduled.

By following these steps and being proactive in managing your loan, you can avoid advancing your due date and minimize the overall cost of your loan.

The impact of advancing your due date

Continued Interest Accrual

If you advance your due date by making extra payments, you may not have to make payments for a few months. However, during this time, interest will continue to accrue on your loan balance, increasing the total cost of the loan. This means that while you gain flexibility, you also end up paying more in interest over the life of the loan.

Higher Total Costs

When you advance your due date, the principal balance is not reduced as quickly. As a result, more interest accrues over the life of the loan, leading to higher total costs. By not advancing the due date and applying extra payments directly to the principal, you can minimize interest accrual and reduce the overall cost of the loan.

No Payment Break

When you choose not to advance the due date, any extra payments are applied directly to the principal. This means you will continue to make regular monthly payments as scheduled without a break in payments. This option may be preferable if your goal is to pay off the loan as quickly as possible and minimize interest costs.

Psychological Relief

Advancing your due date can provide psychological relief by knowing that future payments are covered. This can reduce financial stress and give you peace of mind. However, it is important to note that this may not be the best use of your money, as it can result in higher total costs due to continued interest accrual.

Flexibility

Advancing your due date can offer flexibility in your payment schedule. If you encounter financial difficulties or unexpected expenses, having an advanced due date means you can skip payments for a few months without falling behind. This can be a valuable safety net, but it is important to remember that interest will continue to accrue during this time.

In summary, advancing your due date can provide psychological relief and flexibility in your payment schedule. However, it may result in higher total costs due to continued interest accrual and a longer repayment term. Not advancing the due date and applying extra payments directly to the principal can help minimize interest costs and pay off the loan faster. Ultimately, the impact of advancing your due date depends on your financial priorities and goals.

Pros and cons of advancing your due date

Advancing your loan due date can provide some benefits, but it is generally not recommended as it can lead to higher costs and unnecessary interest charges. Here are some pros and cons to consider:

Pros:

• Advancing your due date can give you peace of mind and flexibility if you're worried about making payments in the future. It can be a good option if you're concerned about your financial situation and want to ensure you don't miss any payments.
• If you choose to advance your due date, you may have the option to skip payments for a few months. This can be helpful if you're facing a temporary financial hardship or need to allocate your funds elsewhere.

Cons:

• One of the main drawbacks of advancing your due date is that it may result in higher total costs over the life of the loan. This is because the principal amount is not reduced as quickly, and interest continues to accrue. As a result, you may end up paying more in interest overall.
• Advancing your due date may not always be the best use of your money. While it can provide psychological relief, it's important to consider if there are more effective ways to utilise any extra funds.
• In some cases, advancing your due date may not significantly impact your payment obligations. For example, if you make regular monthly payments as scheduled, advancing the due date may not provide any tangible benefits.

It's important to carefully consider your financial situation and seek professional advice before making any decisions regarding your loan due date. Each individual's circumstances are unique, and what works for someone else may not necessarily be the best option for you.

Strategies for managing loan payments

Create a Loan Repayment Plan

Start by creating a comprehensive loan repayment plan that serves as the foundation for your loan management. This plan should involve a thorough assessment of your financial situation, including all outstanding debts, interest rates, and repayment terms. Additionally, consider your monthly income, expenses, and other financial commitments. This understanding will enable you to develop a systematic and organised approach to paying off your debts.

Explore Loan Forgiveness and Consolidation

Research loan forgiveness programs and consider consolidating your loans. Loan consolidation involves taking out a new loan with better terms or a lower interest rate to pay off existing ones. This strategy can simplify repayment by reducing the number of loans you manage and potentially lowering your monthly payments. However, be mindful that consolidation may extend your payoff period, resulting in more interest payments over time.

Prioritise Loans with Highest Interest Rates

Focus on paying off the loans with the highest interest rates first. This strategy, known as the "debt avalanche," can help minimise the total interest you pay over time. By budgeting a little extra each month and allocating it to the loan with the highest interest, you can accelerate its repayment and then redirect your efforts to the next highest-interest loan.

Make Extra Payments Towards Principal

Whenever possible, make extra payments directly towards the principal amount of your loans. Reducing the principal balance quickly will lower the overall interest you pay over the life of the loan. Ensure that your lender does not automatically advance your due date when you make extra payments. Specify that you want these additional payments to reduce the principal, minimising the interest burden.

Enroll in Automatic Payments

Consider enrolling in automatic bill payments or using the borrower portal to set up recurring payments. This ensures timely payments, helping you build a positive credit history. A strong credit score will benefit you in the long run by granting you access to better interest rates and loan terms in the future.

Maintain Open Communication

Stay in regular communication with your lender. Understand your loan terms and be proactive in discussing any financial challenges you may face. Lenders may be willing to renegotiate terms or offer assistance to prevent defaults, such as temporary suspension of payments (forbearance or deferment). Effective communication can help build a relationship of trust and find solutions that work for both parties.

Frequently asked questions