Acquiring a personal loan is no longer a tedious task. With the digital process, you can have your loan approved within a few minutes. No more long waiting hours or strict application process.
Although having a huge sum reflected in your bank account is a pleasant sight, monthly repayments are far from fun. Want to break free of this burden? Consider an early loan repayment.
Keep reading this article as we explore the concept of prepaying personal loans, its benefits, and how to go about it.
What Is a Personal Loan Prepayment?
Conceptually, personal loan prepayment is the act of settling an outstanding loan amount before its due date. Usually, people opt for this strategy when they receive a windfall gain, a hefty bonus, or have accumulated savings over time.
Not many borrowers realise that in an extended loan tenure, you will end up paying a lot more interest than the sum you initially borrowed. When you prepay personal loans, you will save on that extra interest.
Not to mention that early repayment reflects your efficiency in managing your finances. This provides a boost to your credit score.
Personal Loan Prepayment Benefits
Considering prepaying your outstanding loans? You are in for the following benefits:
1. Saving Interest
When interest is accumulated over an extended period, it can compound to a significant amount. Prepaying can curtail this accumulation. By paying off the loan amount, partially or completely, you will save on extra interest levied on you over the years.
2. Improved Credit Score
Paying off loans before the end of loan tenure is a sign of financial responsibility. Needless to say, financial institutions respect proactive repayments. Hence, early loan repayment can guarantee a boost in your credit profile.
3. Going Debt-free
Loans are liabilities that take away a good chunk of your monthly salary. Cutting them off through an early repayment is a liberating feeling. With no liabilities dragging you down, you will have less financial stress and much-needed peace of mind.
4. Flexibility
No monthly repayments translate to more flexibility in managing finances. You can use this surplus fund now to make value investments and buy assets that appreciate over time.
Prepayment vs Partial Prepayment
Early loan repayment comes in two forms: complete prepayment or partial prepayment. While both terms imply early repayment, they operate differently.
Complete prepayment denotes a clean slate – the loan amount is settled in one go. In contrast, partial prepayment is a calculated approach, paying a significant portion but not the entirety.
Partial prepayment is a good option when you don’t have the funds to close the loan completely but still want some ease from the monthly payments. You can use prepayment calculators to better understand your loan’s state if you repay it partially.
Tata Capital Prepayment Calculator
Prepayment Calculator is a valuable tool that helps borrowers estimate the impact of prepaying their loans. All you need to do is input specific details, such as the outstanding loan amount, the remaining tenure, and your desired prepayment amount.
With this information, the calculator estimates the reduction in the loan tenure and the revised monthly payments. Effective use of this calculator empowers you to make informed decisions about better prepaying your loans and managing your finances.
Go to Tata Capital’s official website and use the Prepayment loan calculator now. Planning your financial decisions in advance can save you a fortune.
Pros and Cons of Personal Loan Prepayment
Similar to all the available financial decisions, loan prepayment also comes with its own set of pros and cons:
Pros
Cons
Completely prepaying your loans will make you debt-free and reduce your financial stress.
Partial prepayment can be charged with a penalty of 2.5% of the outstanding principal.
Partial loan prepayment will help in lowering your monthly EMIs or loan tenure.
When prepaying the full amount, foreclosure charges can be up to 4.5% of the principal outstanding.
With no loans to pay for, you will be left with a surplus of funds you can now use for investments or personal luxury.
Channelling a significant chunk of funds for prepayment might leave you unprepared for sudden financial requirements.
Loan prepayment will boost your credit score, making you a desirable candidate for future financial services.
By using your surplus funds on loan prepayment, you will miss out on other more lucrative investment opportunities.
How to Prepay Personal Loan?
Prepaying a personal loan is easy and can be done with some simple steps:
1. Think About Your Decision: Before making a move, ensure that you have considered all other options and weighed out their consequences. Additionally, read the loan fine print to find any restrictions regarding prepayment, minimum partial prepayment, and lock-in periods.
2. Communicate with Loan Agent: The next step is reaching out to your lender and discussing your intentions of prepaying your loan. Take their assistance to determine your next steps and prepare any necessary documents.
3. Make Your Payment: Once you have interacted with your lender, make the required payment to close or partially reduce your loan. Look for the applicable modes of payment beforehand.
4. Validate Prepayment: After prepaying your loan and its associated charges, ensure that your payment has been validated. This can be done by receiving a loan closure letter or a revised loan statement from the financial institution.
To Sum Up
Prepaying your loan is a financial decision that can substantially impact your economic well-being. It offers numerous benefits and peace of mind that come with being debt-free. However, it is advised to be cautious with your decision and take a call based on your long-term financial goals.
Closing your outstanding loans is as easy as getting them approved with Tata Capital. With the help of our supportive customer care team and transparent charges policy, you can get your loans repaid and closed within a matter of days. Visit our website to know more!
03 October 2024
5 mins read
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