One of the most crucial areas that all borrowers should consider before availing a personal loan is prepayment.
"Prepayment is an option provided by financial institutions allowing customers to pay their loan prior to the expiry of the loan’s due date."
|Bank||Prepayment Charge||Prepayment Period|
|State Bank of India||
||As per the bank’s terms & conditions|
|ICICI Bank||Prepayment charges of 5% Plus GST will be applicable on prepayment||The whole loan amount can be prepaid at any point of the loan term, after one loan instalment has been paid|
|HDFC Bank||Prepayment charges on salaried personal loans (part/full prepayment):
|Yes Bank||Lon repayment charges & principal amount that can be prepaid:
||Loan can be foreclosed only after payment of 12 loan EMIs|
|Kotak Mahindra Bank||5% plus applicable GST on due principal amount||Prepayment can only be done after 12 months starting from the date of the first EMI payment|
|Axis Bank||Currently the bank does not levy any fee for part-prepayment or foreclosure f a personal loan||As per the bank’s terms & conditions|
|HSBC||Up to 3.75% of the principal outstanding||Pre-payment or foreclosure on a personal loan can be done only after the mandatory lock-in period, mentioned in the loan terms, is over|
||Borrowers may be allowed to foreclose or prepay their loan 6 months after the date it has been disbursed, without any prepayment penalty.|
|Corporation Bank||No fee shall be payable on prepayment of the loan||As per terms and conditions of the lender|
|South Indian Bank||
||Loan cannot be prepaid before the end of 1 year starting from loan disbursal date|
|Punjab National Bank||No charges will be levied on loan prepayment||As per terms and conditions of the lender|
|Andhra Bank||No prepayment charges to be levied on loan prepayment||As per terms and conditions of the lender|
|Central Bank||Prepayment charges levied will depend on the type of personal loan being borrowed||As per terms and conditions of the lender|
|Dhanlaxmi Bank||The prepayment charges applicable on the Dhanlaxmi Bank personal loan are 2% plus service tax on the principal amount due||The loan can be prepaid before or after 12 monthly instalments of the loan have been paid|
|Jammu & Kashmir Bank||There are no prepayment charges levied on prepayment of the loan||As per terms & conditions of the lender|
|Oriental Bank of Commerce||No prepayment penalty shall be charged if the loan is prepaid||As per terms & conditions of the lender|
|Tata Capital||A charge of 2.5% + GST will be levied on any prepayment amount that is over 25% of the principal due.||
||Part-prepayment and prepayment tenure varies for different types of personal loans offered by the lender|
||Prepayment of the loan can be done only after loan EMIs have been paid for the first 6 months after loan disbursal|
For instance, if a customer decides on availing a loan from ‘X’ Bank for five years with the rate of interest set at 15%, and the customer’s income suddenly rises during the third year of the loan, thus enabling him/her to complete making repayments well in advance of the due date, the customer can opt to repay the whole amount by the end of the third year. The terms and conditions of the loan will determine the manner in which the customer can do so.
The cost of lending is always lower in comparison with a customer’s cost of borrowing. For instance, a customer can avail a loan at 15% interest, but the savings made per annum will be no more than 9% to 10%. At the same time, the customer will have to pay 15% interest on the pending loan amount. Should the customer make use of the option to prepay, the loan amount can be repaid instantly, thus saving an extra 5% to 6% on interest per annum.
The amount of money spent by a bank to borrow funds is lower in comparison with its lending price. After lending the money, the bank earns the difference in the amount for as long as the loan runs. Should the customer opt for prepayment, the rate of interest that the bank would otherwise earn over the extra period decreases. Prepayment fees are charged by some banks to make up for the loss of potential income.
The prepayment fees charged by banks vary considerably among banks. There may be multiple restrictions depending upon which bank a customer borrows from, but generally, the rate of interest is between 4% and 5% on the outstanding loan amount. Moreover, prepayment fees can also differ depending upon the completed loan tenure. While zero prepayment fees may be offered by some banks after three years, some others provide discounted rates following a certain time period.
Customers are advised against going for packages that provide low prepayment fees. The first thing to do would be to compare the interest rates against prepayment charges. If the prepayment fees are low but the rate of interest is high then it is advised that you choose the one with lower interest. The prepayment calculator can be used to monetize the advantages you could potentially receive from low prepayment charges. The probability of prepaying the loan amount must also be assessed as prepayments are largely determined by the financial standing of a customer. If the customer is expecting a considerable rise in income then prepayment fees must be considered, if not, packages with low rates of interest may be the best option for you.
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