Prepaying your personal loan
Category: Personal Loan
The personal loan may appear to be âno strings attachedâ option at times of urgent money requirement. Take a personal loan only if you feel that it will rescue you from more expensive debt. But they all come at a price in the form of interest rates which, when compounded over a long period, can add up to a huge sum of money. And furthermore, it also puts you under pressure as a portion of your monthly income is truncated towards paying the EMI. You can prepay your loan fully or partially, depending on the terms of your loan. If planned well and implemented with discipline, you can actually lessen your burden by shedding your liability, partially or fully. However, make sure that the cost attached to prepayment, if any, in the form of a penalty does not nullify the benefits.
Significance of personal loan prepayment
There are several opinions on the implications of prepaying personal loan before its complete tenure. You must keep in mind that a personal loan being unsecured fundamentally has a huge rate of interest. If possible, you should reimburse immediately to refrain yourself from the huge burden of paying interest on the amount of loan. However, the complications arise when the bank told the customer that he has to accept few regulations even if he wants to prepay the personal loan. The most amended regulations are:
- In maximum cases, the borrower is not allowed to prepay the personal loan before a minimum period of 6 months in pursuit of loan disbursement.
When to prepay your personal loan
- Furthermore, you will be subjected to penalty of 2%-5% on the outstanding amount even when one wants to prepay after 6 months of taking the loan.
The borrower has authorization to prepay a personal loan any time after the first six months for which he has to pay some penalty. The aspects affecting this are:
- Financial year ending and quarter ending are the timings when the bankers are expected to abandon some amount of prepayment penalty to entertain the customer.
- If the borrower wants to opt for a huge loan from the same financier such as a car loan or a home loan, in such cases, the penalties can be lessen to a large extent on the verge of continuing the relationship
- In the initial stages, itâs better to pay up a personal loan when the repayment has been done for less than one year. In this case, the actual amount saved from avoiding of interest is higher than for loans which near the end of the tenure.
- The customers should reimburse the loan whenever possible even if they have to pay penalty because the sum paid as penalty may still result in a low total cost in comparison to paying the amount with interest till the completion of the tenure.
Prepaying your loan could be beneficial in preserving a valuable credit history
that comes at hand while scrutinising for other loans and credits whether from the same bank or other.