Personal loans are undoubtedly one of the most preferred solutions for tackling substantial financial needs or emergencies. It’s reliable, versatile, quick to avail, and is usable for numerous end-purposes – from funding your education to home renovation to emergency travelling, or even planning your wedding.
Since personal finance requires zero collateral, its popularity in India is unmatched amongst loans.
However, you should consider ample factors before fixating on personal finance, and one of the most important ones being the personal loan prepayment. While it is one of the many charges a lender incurs during the loan tenure, it’s still a significant deciding factor and requires your devoted attention.
All you need to know about prepayments
When you pay off your outstanding loan amount partially or entirely before the end of tenure, it’s referred to as ‘prepayment’.
The prepayment clause states that the lender will charge a particular percentage of the total loan amount as a fee, should you pay off your loan earlier than the stipulated time.
Additional Read: Things you need to Know about Personal Loan Prepayment Option
Clearing the debt before tenure completion may pose a smart strategy to make you financially worry-free. However, is it economical? Let’s go over its pros and cons to decide.
Full prepayment benefits
Personal financing usually stipulates a one-year lock-in duration, after which you can prepay the entire outstanding amount. This helps you save on your interest payment. Moreover, if you research and find the right lender, they may not have any personal loan prepayment charges.
CIBIL score boost
Full foreclosure or prepayment of a current loan is a significant credit booster, as it increases your CIBIL score and hence, creates a spotless track record. This will massively help you secure loans quicker in the future and negotiate terms with lenders.
If you have extra cash in hand, prepayment will be quite beneficial as it’ll help you clear off the debt quicker and relieve any EMI stress during the tenure.
Making hefty payments
Prepayment in a personal loan, despite its benefits, comes with a challenging price tag – you’ll have to make lump-sum payments to clear off the amount and thus, lose out on financial flexibilities temporarily.
When you prepay loans before tenure ends, some lenders might charge you a prepayment penalty. While some financial institutions or lenders don’t levy any fee, others can charge it at a flat rate or monthly interest for a specific duration. Prepayment charges also include other variants such as administrative charges, foreclosure charges, etc., depending on what the lender deems fit.
So, before you decide on foreclosing or prepaying your loan, keep these factors in mind and carefully evaluate the prepayment charges, additional interests, and whether it’ll benefit you.
Are you looking for finance at attractive personal loan interest rates? Well, then turn to Tata Capital. Apart from great interest rates, we offer personal finance at flexible repayment terms and with minimal paperwork.
Calculate your monthly instalment today with our online personal loan EMI calculator.