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.
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.
Early repayment of loan, whether in full or in part, is a good idea when:
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.
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 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.
Yes, it can be a good option to opt for part payment as you can reduce your EMI over the same tenure. You can also keep the EMI amount same but get your tenure. Either way, in some way or the other, you can save a bit. However, there are charges levied, and based on your financial position should you decide whether you wish to part pay your loan.
Yes, it can be a good idea to repay your personal loan early as you will be charged a less interest on the loan amount. Also, once you clear your loan early, not only will you be able to save considerable, but your overall credit score will also improve allowing you to avail another loan if necessary. You will save money which you can use to meet your other future needs.
Yes, you can part-pay 25% of the outstanding principal amount and a maximum of two-part payments during a financial year.
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