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Tata Capital > Blog > Why Should You Use Your Annual Bonus to Prepay Loans?

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Why Should You Use Your Annual Bonus to Prepay Loans?

Why Should You Use Your Annual Bonus to Prepay Loans?

How should you use your annual bonus? Should you use it to spend, invest or prepay home loan? These are the pressing questions that arise when you receive a yearly bonus. Although it might sound tempting to spend the lump sum amount to make a heavy-duty purchase, it could be more beneficial to use it for prepaying a home loan.

All earning individuals are aware of the monthly bondage of EMIs, which greatly hampers their ability to save money for the long run. However, correctly leveraging an annual bonus can significantly reduce your EMI burden. Here are some benefits you can avail by using your annual bonus to make a pre-emptive loan payment.

Get quicker respite from EMIs

The first variable to be considered when repaying a loan is the tenure. Using your annual bonus, you can make early repayments in parts and significantly cut down on the tenure. Suppose you take a hefty home loan with a term of 15 years. The full or partial amount of the annual bonus can help you to make smart prepayments and bring down the repayment period.

Prepayment helps you save

Many people get involved in the dilemma of saving versus using the bonus to prepay loans; however, making an early repayment can save you from the sky-rocketing home loan interest rates. When you make a prepayment, the tenure gets reduced, and you can conclude repayments quickly. This can save up to lakhs of rupees that would have accumulated as interest rate on the loaned amount over the years. Prepayment also ensures that you do not end up shelling out hefty amounts as interest rates in the long run.

Additional Read: Dos and Don’ts for a Home Loan Prepayment

Things to consider before you decide to prepay your loan

Prepayment of loan can be beneficial in the long run, but there are specific home loan prepayment rules you should be aware of. When you make a full or part-prepayment, the lenders incur a loss, which is why they levy a foreclosure fee. The pre-closure fee depends on the rate set by the lender along with the loaned amount.

When you make a part-prepayment, the lender considers the remaining amount as the principal amount and levies an interest rate on it. The interest rate can differ based on your lending institution. To ensure transparency, you can use home loan calculators to forecast your interest and EMI.

Additional Read: 5 Things to Consider Before Home Loan Prepayment

Make an informed choice

Paying off loans before the stipulated period is a good idea when you have job security and a certain amount saved as an emergency fund. Moreover, the timing of prepayment is crucial, as it can make or break your savings. Prepayment in the initial period is generally more beneficial as it can significantly reduce your EMIs for the upcoming years. Today, you can also use home loan EMI calculator to get an estimate of your EMIs.

If you wish to get loans at competitive rates that allow for prepayment options, Tata Capital is your best option. We offer loans at basic home loan eligibility along with full or partial prepayment options as per RBI guidelines and full transparency of foreclosure charges.

What’s more, you can even use our online home loan eligibility calculator to get information about the amount you are eligible for and get the most attractive home loan rates based on your eligibility.

To know more, get in touch with us today!

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