Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs SUPPORT
Loans For You
Loans for Business
Investment
Insurance
Apply

Quick Links for loans

Quick Links for Insurance

Investment

Offers Quick Pay
Back

Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure
Know More
Back

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required
Know More
Back

New Commercial Vehicle Financing

  • First time user
  • Retail and strategic Clients
Know More
Back

Used Commercial Vehicle finance

  • Repurchase
  • Refinance
  • Top up
  • Balance Transfer
Know More
Menu  
 
Apply Now

Tata Capital > Blog > Personal Use Loan > Does Prepayment of Personal Loan Affect Your Credit Score?

Personal Use Loan

Does Prepayment of Personal Loan Affect Your Credit Score?

Does Prepayment of Personal Loan Affect Your Credit Score?

Personal loans are undoubtedly one of the best instruments for resolving financial constraints and achieving major milestones in life. Since these loans don’t need collateral from borrowers, they are naturally quite popular.

At times, borrowers prefer to pre-pay the loan ahead of time and get the burden off their shoulders. Many also do this if they are planning to take another loan and don’t want to service two loans at a time. Are you wondering if prepayment is a viable option for you? Will it affect your credit score? If yes, how?

Let us take a look at how pre-paying your loan impacts your credit score.

Things to consider before you prepay

Debt-to-income ratio

Personal loan pre-payment can reduce your debt-to-income (DTI) ratio since your debt obligations will reduce. This is advantageous for you if you are planning to take on another loan after prepaying your current one. The lower your DTI, the higher are your loan approval chances. Thus, if you’d applied for the loan for emergency funds, and are now able to re-pay, you can consider pre-payment. 

Savings

While repaying your loan early can relieve you of the loan burden, exhausting your savings to do this can prove risky. It will definitely affect your ability to tackle any unforeseen financial emergencies. However, if you have ample savings with left even after pre-payment, you can think about it. But, if your savings are slim, personal loan repayment before the due date is not advisable.

Additional Read: Things you need to Know about Personal Loan Prepayment Option

Impact of prepayment on credit score

If making timely payments towards your loan spells good news for your credit score, then the same logic should apply to paying your loan off early, right? Unfortunately, it does not work that way.

Paying off a loan is much different from clearing the dues of credit cards and paying EMIs. When you clear off a loan completely, your credit report indicates a closed account. However, when calculating your credit score, credit rating bureaus take your open accounts into consideration.

Effective management of the finances of the open accounts has a more significant impact on credit scores than the ones closed early. This is because open accounts are indicative of your present and past debt history. While timely and regular payments on closed loans form a crucial part of your credit history, the personal loan impact on credit score is not too significant. It is worth remembering that this logic does not apply to credit card repayments. An active credit card account is always considered an open account. Thus, even when the balance is full and untouched, your credit line stays intact.

Additional Read: Things to Know About Personal Loan Closing Procedure

Summing up

If you do have the funds to pre-pay your loan, it is something you can consider. Whether you decide on paying off your loan early or not, it is vital to choose an established lender like Tata Capital. Come to us for attractive personal loan interest rates, flexible terms, and minimal personal loan documentation.

What’s holding you back? Reach out to us right away and enjoy reliable lending solutions at Tata Capital!

Apply Now

Get an Instant Personal Loan for all your needs !

Apply now
Popular Searches
loan without cibil personal loan for 15000 salary Loan for ring small cash loan on aadhar card pre approved personal loan What To Buy On Dhanteras Personal loan when self employed how to increase cibil score form 15g for pf withdrawal how to download aadhar card
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Other Websites

Useful Links and Resources

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Policies, Codes & Other Documents

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.