A personal loan is one most effective way to handle an emergency situation. It is available without any collateral, within days and at an affordable interest rate. Personal loans act as a bridge between us and our unexpected financial needs. Home improvement, wedding, hospital cost, and travel are popular uses for Personal Loans.
However, after taking a personal loan, there may come a time when you want to do personal loan repayment at one shot. It can be a one-time cash inflow, or a more affordable loan, or some other reason because of which you want to settle the loan before tenure. However, is it a good idea to prepay? Read on more.
If you are thinking of making a full personal loan repayment, do it in the earlier stages. You should also know that most of the financial institutions have a lock-in period of one year. You are allowed to prepay only after this period. Lenders like Tata Capital allow prepayment after just 6 months. Calculate loan EMI here.
Next comes the charges related to the personal loan repayment. Different lenders have different charges when it comes to prepayment. The charge can be up to 4-5% when the loan tenure is still new, while the charge drops 2-3% during the tenure, and then to 1% or even less as the loan tenure end approaches.
Full or part
Part personal loan repayment is a good strategy to knock off interest cost. If your financial resources do not allow you to pay the personal loan in full, you can reduce the balance as much as you can.
The interest on any personal loan is charged on the outstanding amount. So, any reduction via part payment will lead to interest savings when the principal comes down. It is a matter of calculation to see how much you save over the loan tenure if you repay in full or in parts.
Partial prepayment for personal loans can be done a number of times. Do watch out for any restrictions before taking a loan.
Personal loan repayment is beneficial if you make it during the initial stages of the loan. You have to wait for the lock-in period to end. Compare the amount of interest you save with the cost of prepayment. If you save adjusted for costs, it makes sense to proceed on personal loan repayment.
Talk with experts at Tata Capital, if you are interested in a personal loan or click here to apply now.