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    Personal loan Part Prepayment

    It is easy to get a personal loan because of quick disbursal and minimum documentation. Loans are issued on terms of agreement that the loan amount will be repaid within a specific tenure. The loan is repaid every month in the form of EMI, which comprises of the principal amount as well as rate of interest charges. There are times when you wish you could just pay off your loan at once, and free yourself from the loan at once. Some banks allow borrowers to repay their loans to repay earlier than the said tenure. There are also options of repaying parts of the loan at a convenient time as well.

    What is pre-payment?

    Pre-payment or early repayment is a payment you make towards your loan repayment, before it reaches maturity. There are two ways of making pre-payments, one is by paying off the complete loan, or paying it by part. Banks cannot stop you from making pre-payments, however they can charge you a penalty for it. The pre-payment usually is a big amount.

    When should I choose to pre-pay my loan?

    Early repayment of loan, whether in full or in part, is a good idea when:

    • If you have a large sum of money and have the capacity to settle the amount in part, or full, without affecting your budget.
    • You can save on the interest rate charged in case of a longer tenure. Making an early repayment results either in reduction of the EMI or reduction in tenure with the same tenure.

    Part pre-payment:

    When you have some additional money in hand, however it is not adequate to repay the entire principal outstanding loan amount. However, it only makes sense to make part pre-payment if you have a significant amount of lump-sum money. Some banks allow you to pay two to five times of your EMI value at least once a year, or even more. However, it is advisable that you ensure your bank provides you with this facility.

    Penalty for pre-payment:

    Banks and NBFCs generate profit from the interest rate that they charge on personal loans, during the entire loan tenure. The longer the tenure, higher is the interest charged, and greater is the profit. When a borrower chooses to make an early payment or part payment, the outstanding balance of the loan decreases, which in turn affects the profit generated by the bank. Therefore, banks charge a percentage of the repaid amount in order to compensate for the lost profit. Penalty for part pre-payment usually is either a percentage of the amount prepaid or a percentage of the principal amount.

    Part Pre-payment Calculator

    Part pre-payment calculator is a calculator which enables you to calculate the positive impact of an early loan repayment. Part pre-payment calculator can be found online where all you have to do is enter the loan details such as loan amount, rate of interest, loan tenure, and the amount you want to pre-pay.

    Go through your loan documents thoroughly to understand the process of pre-paying your loan in parts. It is always a good idea to take a loan with the bank which offers the best services and penalty-free policies.

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