.gif)
.webp)
.svg)
Personal loans are prevalent in India due to their flexibility. Be it emergency expenses like a medical emergency or long held-up expenses like home renovation; personal loans can be used for several reasons. Most lenders in India offer personal loans for a duration of up to 5 years.While the personal loan repayments tenure will be fixed at the time of taking the loan, you also have the option to pre-pay the same before the actual tenure. Let us have a look at some of the most important points about personal loan pre-payment-
What is Personal Loan Prepayment?
As the name suggests, the pre-payment facility helps you repay the personal loan before the actual tenure of the loan. This allows you to save on the interest that you would have paid by following the actual repayment tenure.However, there is generally a fixed duration of 12 months set by the lender only after which you are allowed to pre-pay the loan.
What is Part Pre-payment and Full Pre-payment?
With the part pre-payment option, you are allowed to pre-pay some part of your outstanding personal loan balance. With part pre-payment, the total unpaid principal amount falls and this helps in reducing your monthly EMIs. However, part pre-payment facility is not offered by all the lenders.With full pre-payment, you pre-pay the entire outstanding balance in one go. If you are going with the full pre-payment option, try to do it as early in the loan tenure as possible if you want to save on the interest payments considerably.
Are There Prepayment Charges?
Yes, you are required to pay pre-payment charges for using this facility. The charges are generally a fixed percentage (usually in the range of 5-6%) of the outstanding amount plus the applicable GST. However, banks and financial institutions may give you a waiver if you have paid a minimum number of EMIs set by the lender. This could typically range between 1-3 years.So, if you are planning to pre-pay personal loan payment , make sure that your interest savings are considerably higher than the pre-payment charges that you will be required to pay.
How to Pre-pay Personal Loan?
If you want to pre-pay your personal loan, you can get in touch with the lender with your request for the same. The lender will then guide you through the entire pre-payment process.Make sure that you first discuss this option with your lender to ensure that you will actually be able to save a decent amount of money by pre-paying the loan.
To Pre-pay or Not To Pre-pay?
Pre-paying a personal loan is generally beneficial if you can pre-pay the loan in full or in part as soon as the minimum payment duration is over. Calculate your pre-payment savings and compare the same with the pre-payment charges to make the right decision.
DISCLAIMER
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.
FAQS - FREQUENTLY ASKED QUESTIONS
Can we close a Personal Loan before one year ?
Lenders do not allow you to pre-close a Personal Loan before one year. If you have saved enough money to pre-close before a year, put that money in low-risk short-term investments, such as bonds or debt funds, till one year has passed from taking your Personal Loan. This way, you might earn profits until you pre-close your Personal Loan.
Are there any pre-closure charges for Home Loans ?
Aditya Birla Capital has no pre-closure charges for floating-rate Home Loans to individuals. However, other Home Loans would attract a pre-closure charge equal to 2% of the outstanding principal. Loans Against Properties and lease rental discounting would attract a pre-closure charge of 4% of the outstanding principal.
How do you avoid pre-closure charges for Personal Loans ?
Banks and non-banking finance companies allow you to pre-close your Personal Loans after one year. However, you would have to pay a pre-closure fee.
Is pre-closure of a Personal Loan advisable ?
Pre-closure of a Personal Loan could be a wise decision if you will not experience a shortage of funds after pre-closure and if the interest savings are higher than the pre-closure charges.
What is the procedure for the pre-closure of a Personal Loan ?
To pre-close your Personal Loan, you need to visit your lender, get a pre-closure quote (the amount you need to pay to close the loan), fill out a form or write a letter requesting pre-closure, submit copies of some basic documents, and pay the pre-closure fee.
