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  • Personal Loan Prepayment

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  • 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."

    Personal Loan Pre-payment charges of top financial lenders

    Bank Prepayment Charge Prepayment Period
    State Bank of India
    • 3% on amount being prepaid for 3% for Xpress Credit, Xpress Power and Pension Loans
    • No prepayment/ foreclosure charges to be charged if loan account is being closed with the funds obtained from a new loan under the same scheme
    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):
    • Closed between 13-24 months - 4% of principal due
    • Closed between 25-36 months - 3% of principal due
    • Closed after 36 months – 2% of principal due
    • Prepayments not permitted, in part or in full, before 12 loan EMIs have been paid
    • Part payment can be done for up to 25% of principal amount due, only during a financial year and twice in the loan term
    Yes Bank Lon repayment charges & principal amount that can be prepaid:
    • Closed between 13 to 24 months - 4% of principal due (20% principal due can be paid)
    • Closed between 25 to 36 months - 3% of principal due (20% principal due can be paid)
    • Closed between 37 to 48 months - 2% of principal due (25% or principal due can be prepaid)
    • If prepaid after 48 months – no foreclosure charges (25% or principal due can be prepaid)
    Loan can be foreclosed only after payment of 12 loan EMIs
    Citibank
    • Prepayment charges of up to 4% of principal amount due, along with plus, interest for the ongoing month
    • Loans taken on/after 1 Oct 2015 can be closed in full after 12 months of booking the loan
    • Loans taken before 1 Oct 2015 can be closed in full 6 months after the loan being booked
    • Partial pre-payments can be made after 12 loan EMIs have been paid during a period of not less than 12 months
    • Amount being prepaid must not be less than 2 EMIs and not more than 5 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
    IndusInd Bank
    • Loans to salaried individuals - 4% of the principal due
    • Loans to self-employed individuals - 4% of the principal due
    • Salaried borrowers can foreclose or prepay the loan after paying 12 EMIs
    • Self-employed borrowers can foreclose/pre-pay the loan after making 6 EMI payments
    IDBI Bank
    • If the loan is being foreclosed or prepaid in full or part within 6 months from the loan disbursal date, a fees of 2% of the loan amount due will be charged.
    • Those foreclosing/prepaying their loans must note that they will not be sanctioned any loan before a period of 12 months starting from the date on which they have prepaid/foreclosed their last loan.
    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
    • If the loan is being prepaid in part or in full within 1 year of disbursement – 4%
    • If the loan is being prepaid in part or in full after 1 year of disbursement – 2%
    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 on the loan is not permitted before 6 months starting from the date of loan disbursal
    • Part prepayment can only be done once in a year.
    • There has to be a gap of at least 6 months between two part prepayments
    • Part payment can be done for up to 25% of the outstanding loan principle
    Bajaj Finserv
    • Foreclosure – A fee of 4% + applicable taxes will be levied on the principal amount due
    • Part-prepayment – A fee of 2% + applicable taxes will be levied on the principal amount due
    Part-prepayment and prepayment tenure varies for different types of personal loans offered by the lender
    IIFL
    • Foreclosure – A charge of up to 6% will be charged
    • Prepayment – the loans can be prepaid without attracting any penalty or charge
    Prepayment of the loan can be done only after loan EMIs have been paid for the first 6 months after loan disbursal
    Fullerton India
    • Loan closed between 7 to 17 months from agreement date – 7.00% (for salaried/self-employed borrowers)
    • Loan closed between 18 to 23 months from agreement date – 5.00% (for salaried/self-employed borrowers)
    • Loan closed between 24 to 35 months from agreement date – 3.00% (for salaried/self-employed borrowers)
    • Loan closed after 36 months from agreement date – No charge to be levied for salaried/self-employed borrowers
    • The loan can be foreclosed only after 6 months from the loan disbursal date.
    • The loan amount can be repaid at any time during the loan tenure

    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.

    Benefits of Personal Loan Prepayment

    1. Go debt-free faster: You have taken a loan to take care of some essential expenses, and now it’s time to repay it. However, if not managed prudently, your personal loan can very well cause great financial distress. Personal loan EMIs also take away a chunk of your monthly savings. This is why it is often recommended to prepay your personal loan fully if you have any extra income coming your way. When you prepay your loan, you may have to pay a prepayment fee, which is typically nominal. However considering the fact that prepayment can help you be free of debt well before the end of the loan repayment tenure, the prepayment fee is definitely a small price to pay in that regard. Not to forget, you will no longer have to stress about loan EMIs eating into your savings.
    2. Prepayment means reduced interest outflow: When it comes to loan prepayment, one of the most important aspects to consider is the lock-in period. This refers to the period during which the lender does not allow the borrower to make any prepayments, full or partial, towards the loan amount. However, once the lock-in period is over, and you are in possession of some extra income, try prepaying your loan, fully or even partially. What this will do is save you a considerable amount of interest that would be applicable on your borrowed loan amount. Don’t forget the prepayment fee that accompanies loan prepayments, which would still be a bargain to pay, considering the loan interest amount you’d be saved from paying.
    3. Partial Prepayments Can Lower Your Debts: In tune with the above-mentioned points, here we talk about partial prepayment on a personal loan. What it can do is really quite simple – lower your debt burden. When you partially prepay your outstanding loan amount, you lower your debt burden. What this also does is lower the amount of interest you pay that is chargeable on the total outstanding amount. However, if you wish to prepay your loan amount, try doing it during the early years of the loan tenure.
    4. Improve Your Credit Score : When you prepay your loan, fully or partially, you are wiping out or lowering your debt burden in one shot. What this does is improve your credit score as outstanding loans are directly linked to your credit score. When the outstanding loan amount is reduced or completely paid off, with partial or full prepayment, your credit score also automatically goes up, thereby improving your chances of getting another loan.

    Is it better to make Prepayments on the Personal Loan you avail?

    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.

    Prepayment fees charged by banks

    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.

    How do customers deal with Prepayment charges on their Personal loans?

    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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