Advantages of Prepayment and Part Payment of Personal Loans

When it comes to personal loans , there are a few things that you need to know. Apart from repaying it in EMIs, there are two other ways to repay the loan: prepayment and part-payment. But there are also two types of charges associated with personal loans: pre-closure charges and foreclosure charges.Prepayment of a personal loan comes with its own set of advantages. If you have the means to repay your loan before the end of the tenure, then it makes sense to go for prepayment.In addition, part-payment of a personal loan is also a good option if you want to reduce the overall interest payable on the loan. However, there are also some disadvantages associated with prepayment and part-payment, which you should be aware of before making any decisions.

Part-payment of a personal loan means when you have some spare money, not enough to pay off the entire debt principal-wisebut can be used to lower the loan amount.Prepayment means paying back part or your entire loan before its term ends. Most banks allow you to repay the outstanding principal after just one year, which helps save on interest charges!The prepayment option can help you escape the burden of interest charges early. You may even qualify for special perks like a free trading account or zero-balance savings account if you choose this route!

Benefits of Personal Loan Prepayment

There are several benefits of personal loan prepayment and part-payment, which we have listed below:

• It helps reduce the overall interest payable on the loan
• It gives you the freedom to repay your debt early
• It allows you to escape the burden of interest charges early

Suppose you have taken a personal loan of Rs. 50,000 for a period of two years at an interest rate of 12%. If you choose to prepay the entire loan amount after one year, then you will only have to pay an interest of Rs. 6000 (12% of Rs. 50,000). However, if you choose not to prepay the loan and continue paying EMIs for the remaining two years, then you will end up paying an interest of Rs. 12,000 (24% of Rs. 50,000).

Benefits of Personal Loan Part-payment

Part-payment of a personal loan can help you in the following ways:

• It reduces your overall interest burden
• It helps you save money on EMIs
• It gives you some financial flexibility in case of an emergency
• It allows you to repay your debt early

Let's take a look at an example to understand how personal loan partpayment can help you save money-Suppose you have taken a personal loan of Rs. 50,000 for a period of two years at an interest rate of 12%. If you make a part-payment of Rs. 25,000 after one year, then your outstanding loan amount will reduce to Rs. 25,000. This will result in a lower interest outgo over the remaining tenure of the loan.

If you have decided to go for personal loan foreclosure , then applying for it is a simple process and can be done by following the steps mentioned below: Step One: Approach your bank or lender and request for personal loan foreclosure. Step Two: The lender will calculate the outstanding principal amount and the interest due on loan as of the date of foreclosure. Step Three: Once this is done, the lender will give you a no-objection certificate (NOC), which needs to be submitted to your new lender at the time of availing a fresh loan.It is important to remember that most banks and NBFCs charge personal loan foreclosure charges of up to five percent of the outstanding principal amount plus GST. Therefore, it is advisable to check with your bank or NBFC about their charges before opting for foreclosure.

Prepaying or part-paying your personal loan will not have any impact on your credit score.

Prepaying or part-paying your personal loan is a great way to save on interest costs and get out of debt early. However, it is important to remember that most banks and NBFCs charge personal loan foreclosure charges. Therefore, it is advisable to check with your bank or NBFC about their personal loan preclosure charges before opting for it.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.