How Does A Personal Loan Part Payment Works? Benefits & Features

A personal loan is often unsecured and requires minimal documentation. The repayment of the principal and interest amount has to be done in a specified time, in the form of monthly EMIs. Sometimes, you may wish to pay a larger sum of money at one go to reduce your future EMIs or the total tenure. This payment is referred to as part payment of a personal loan. It is generally done for a total of at least 3 EMIs.

It can help you reduce the EMI amount over the same tenure. Also, you may opt for the same amount of EMI and get your tenure reduced. Both ways, it can help you reduce your overall debt. The part payments only work when the amount paid is substantial. Since some banks apply prepayment charges, paying a small amount will not significantly lower your EMIs. Get an understanding of the bank rules regarding part payment before applying for a loan.

An assessment of your revised EMIs, savings on EMIs and revised tenure can be made from the loan amount, tenure, interest rate, and part payment amount. You may also use online calculators for this assessment.

Let's assume that a person has borrowed Rs. 300000 for 24 months. The monthly EMI to be paid is supposed 15000 Rs. Now, if you make part payment of Rs 60,000 in one go, you may now pay 12500 Rs for a tenure of 24 months. Also, you may choose to pay the same 15000 Rs per month for 20 months rather than 24 months.

The loan giving authorities make profits out of the interest charged on the personal loan amount. The profit increases when interest charged increases with longer tenure. In such a scenario, when part payment is made, the repayment amount reduces and hence the profit of the lending party is also reduced. Hence the bank sometimes charges a percentage of the part payment amount to compensate for their low profits. The rules regarding charges may differ from bank to bank, and so it is better to get the clarity before applying for the loan.

It is a great idea to consider part payment if you have a larger sum of money at your disposal so that your future financial commitments reduce. The impact should be well assessed before deciding to get a clear picture beforehand.

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.