Personal Loan Pre-Payment Decoded
The number of individuals applying for Personal Loans has increased manifold in the past few years. With financial institutions offering Personal Loans at competitive rates, there is an emerging trend to apply for a loan at some point. One can opt for a Personal Loan for many reasons, right from paying overdue bills to dealing with emergency medical expenses, planning a trip abroad and so forth.
Since most banks offer Personal Loans at similar rates, it is your personal preference as to which bank to choose. You should also be aware of the prepayment charges of a Personal Loan.
We as Indians are usually risk averse and prefer to pre-pay our debts. Several factors influence the need to pay a loan in advance.
Full Prepayment or Foreclosure of a Personal Loan
When you Apply for Personal Loans Online, do read the fine print carefully. Most banks set a lock-in period that has to be adhered to before paying it off in full, along with interest accumulated for that period.
Banks offer Personal Loans at varying interest rates ranging from 10.99% to approximately 20%. If you are looking at prepaying your loan before the loan tenure, it is advisable to pay it in the early stages. This is because it will save your more on interest cost. Many banks have a mandatory 1-year lock-in period, post which you can pay off the entire loan amount. You will pay a majority of the interest during the lock-in period.
Taking a Personal Loan also has certain ancillary costs such as documentation charges, loan processing fees and authorisation schedule charges. In case you change your mode of payment half way, there will be a certain amount that you would need to pay as additional charges or transfer charges.
If you take less time prepaying your loan, you will naturally save on interest costs. As soon as the lock-in period is over, you end up saving a huge amount of interest on your total loan amount if you prepay. Another crucial point to be noted here is the prepayment charge. Banks have different charges, and it is best to clarify this before prepaying your Personal Loan.
Part Payment of Your Loan
You may face various constraints when prepaying a loan amount in full. In case your budget does not allow you to clear your loan at once, you can make a partial payment of the Personal Loan as well. This directly affects your total loan amount. Making a part payment is also advisable as the amount paid is directly deducted from the total outstanding principal loan amount. Since the interest will be levied on your total loan amount, this should help ease the burden of the entire loan.
The most important aspect of part payment is that you can make this payment as many times as you want. However, this is another point that you need to clarify with your lending bank as some of them have a cap on the prepayment of Personal Loan.
Prepayment of a Personal Loan proves to be beneficial at any point during the loan period. As soon as your lock-in period comes to an end, you can discuss the terms and conditions with your bank should you wish to take this route. However, it is also important to bear in mind the prepayment charges that may be attached to your loan.
Comparing the cost of the prepayment with the amount saved is a good way forward. Our experts at MyMoneyMantra can assist you with the necessary information regarding Personal Loans from different banks to get you the best deal.
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