The biggest benefit of paying off loans is negating the effects of compound interest. Even if your loan has a relatively small interest rate, it can add up over time.
For example, let’s say you borrow $10,000 at an annual interest rate of 5 percent. The first year, you’ll owe $500 in interest. If you don’t pay that off, you’ll owe interest on both the principal and the new interest, amounting to $525. If you’re not careful, this can snowball exponentially, ultimately costing you more money in the long term. The faster you pay off your debts, the smaller this effect will be.
On top of that, making payments consistently and keeping your debt to income ratio low lead to a higher credit score, which can qualify you for better interest rates and better loan terms in the future.
Some people even like paying off loans because it makes them feel better about their personal finances. Holding debt can be stressful.