When you have excess funds in hand, prepaying your Personal Loan will help you reduce your debt considerably. By making part-prepayments, you will not only chip away at your loan principal, but you will also be able to reduce the overall interest that you pay. Additionally, you can become debt-free faster or reduce your EMI amount.
However, it may not always be economical to prepay your loan owing to the fact that it may incur extra charges and fees. In order to keep prepayment as a viable option, choose loans from NBFCs. Here, you can get a quick Personal Loan up to Rs.25 lakh on nominal interest rates and prepay at no additional cost when you avail the Flexi Loan facility.
Here’s an in-depth look at the things you should know regarding prepayment on your Personal Loan.
- Prepayment benefits
When you make part-prepayments towards your loan, you save big. This is because it reduces your overall principal amount, and thus reduces your overall interest. You can take advantage of this in two ways: either pay reduced EMIs along the same tenor or pay the same EMIs and close your loan earlier than your chosen tenor. By prepaying your loan either in full or in part, you not only reduce your debt but also improve your credit score.
- Prepayment charges
Prepayment charges differ from one lender to another. You must compare the charges you will be paid alongside the overall interest on your Personal Loan before prepaying your loan. If the charges are too high, you may not be able to benefit greatly from prepaying a part of your loan. So, it is best to choose a lender based on prepayment and foreclosure charges right from the get-go.
If you avail the Flexi Loan facility from Bajaj Finserv, you don’t have to pay anything extra on your prepayments. This facility allows you to withdraw funds from your sanction as and when required. Here, you pay interest only on what you use. Further, you can choose to pay interest-only EMIs through the tenor and repay the principal whenever you have surplus funds in hand. Additionally, you can make part-prepayments towards the principal all along the tenor at no extra charge.
Alternatively, if you get a Personal Loan as a term loan, then in order to repay your loan, you will have to pay 2% plus taxes as fees on the part-prepayment amount. In case of a foreclosure, which is a full repayment of your loan before the tenor, you will need to pay 4% plus taxes on the principal outstanding.
To calculate how you can benefit from prepayment, use a Personal Loan prepayment calculator.
- Prepayment terms
Next, learn the terms of your lender when considering part-prepayment. The timeline and the amount that your lender allows you to prepay can make all the difference to your repayment. Some lenders allow you to prepay any amount over the value of 1 EMI, while others require twice or thrice the EMI amount as a minimum. Some lenders allow you to prepay right from the beginning, and some allow you to prepay after you have paid a certain number of EMIs.
So, whether you should prepay your loan or not depends on your savings and the prepayment charges levied by your lender. Usually, prepaying your Personal Loan is of great advantage to you, helping you repay with Personal Loan more comfortably.