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Tata Capital > Blog > Personal Use Loan > What Are the Key Benefits of Prepayment and Partial Payment of Personal Loan 

Personal Use Loan

What Are the Key Benefits of Prepayment and Partial Payment of Personal Loan 

What Are the Key Benefits of Prepayment and Partial Payment of Personal Loan 

Flexible and easily accessible, personal loans are the perfect financial aid in the hour of need. Nowadays, the process to apply for a personal loan has become very straightforward. You can either apply for a personal loan online from the comfort of your home or walk into any nearby financial institution.

Sure, applying for a personal loan is pretty easy. But the repayment part is a whole different story. Most people use the entire loan tenure to repay the loan. However, this can get exhausting as you have to pay a specific interest on the personal loan every month. In such scenarios, you can choose to foreclose the personal loan by paying the outstanding amount at once or by making partial payment of the personal loan.

What Is Personal Loan Prepayment?

When a borrower avails of a personal loan, they repay it in EMIs that are best decided with the help of a personal loan calculator. But, if you have surplus cash, you can consider closing the loan by repaying the outstanding principal in a lump sum.

Benefits of Personal Loan Prepayment

First off, if you choose to prepay the personal loan in full, you will save a lot of money on the interest. Higher personal loan interest rates can often turn into a substantial financial burden, leading to increased chances of default. If the prepayment on the personal loan is made immediately after the lock-in period, you can save a lot in terms of payable interest.

But here’s the catch! The EMIs are structured so that the interest payments are higher during the initial part of the loan tenure. However, it is still quite beneficial to prepay to avoid paying interest.

Before deciding on personal loan prepayment, always remember to do a cost-benefit analysis. Calculate how much the personal loan is costing you and how much you can save by making a prepayment. It also helps to use a personal loan EMI calculator available online. Enter all the details such as loan amount, tenure, interest rate, processing fee (if any), personal loan foreclosure charges (if any), etc. to calculate your EMI accurately. Always be aware of your lender’s terms and conditions, especially foreclosure charges before you opt for the full repayment.

What Is Personal Loan Partial Payment?

Partial prepayment means that you can opt to pay the principal amount partly. Partial payment towards a personal loan can be made when you have a lump sum lying idle, but the amount is not equivalent to the entire outstanding loan amount. 

Benefits of Personal Loan Partial Payment

Paying a hefty amount as part of the interest till the end of your loan tenure can cause a financial strain, more so if you have chosen a long tenure. If you make partial payments towards the outstanding amount, then your unpaid principal loan amount will reduce. Hence, doing this will decrease your interest burden and save you a substantial amount of money.

However, you should keep in mind that partial payments only work when you pay a lump sum amount. Making a small partial payment for a personal loan will not create much of a difference, especially if there are prepayment charges involved. Also, when it comes to personal loans, many financial institutions don’t allow partial payments. Thus, be mindful of the rules and conditions before you apply for a personal loan with a lender.

Also, read – What is an Overdue Amount in Loan?

Personal Loan Prepayment and Partial Payment Charges

Personal loan prepayment charges are fees that lenders may apply when a borrower decides to repay the loan amount before the end of the agreed tenure. These costs are often also referred to as foreclosure charges personal loan, and they are intended to compensate the lender for the interest earnings they lose when a loan is closed early. 

In many cases, lenders also apply partial payment charges when borrowers pay a portion of the outstanding balance ahead of schedule without fully closing the loan. While early repayment helps reduce total interest outflow, it’s important to the charges that apply. Look at Tata Capital’s personal loan prepayment charges as well as partial payment charges:

  1. Partial Payment Charges/Part Payment Charges: 
  • No charge for part-payments up to 25 % of the disbursed loan amount over the full tenure. 
  • If part-payment is made within 12 months of first disbursement: 6.5 % of the part-payment amount. 
  • If part-payment is made after 12 months: 4.5 % of the part-payment amount. 
  • For a “Dropline Facility (Hybrid Term Loan)”, these part-payment charges apply only if the facility amount is reduced. 
  1. Foreclosure/Full Pre-payment Charges
  • If the full loan is foreclosed within 12 months of first disbursement: 6.5 % of the principal outstanding at foreclosure time. 
  • If the full loan is foreclosed after 12 months of first disbursement: 4.5 % of the principal outstanding at foreclosure time.

Also, read – Factors affecting Working Capital Requirements

Key Differences Between Prepayment and Partial Payment

The difference between full and part payment loan lies mainly in how much of the outstanding amount you choose to repay ahead of schedule. 

In a prepayment vs partial payment context, prepayment refers to clearing the entire remaining loan balance before the end of the tenure. This closes the loan completely, stops all future EMIs, and results in maximum interest savings. It is ideal for borrowers who have sufficient surplus funds and want to become debt-free early, though some lenders may charge a prepayment fee.

On the other hand, a partial payment means paying only a portion of the principal in advance. The loan is still due, but the outstanding balance decreases, resulting in either a shorter term or lower EMIs. For borrowers who wish to lower their interest burden without making a full settlement commitment, this option offers flexibility. 

Also, read – What is Debt Financing?

When Should You Consider Prepayment or Partial Payment?

You may be wondering “When to prepay personal loan?” You should consider it when you have surplus money, like a bonus, incentive, or tax refund, and want to reduce your overall interest cost. Prepaying early in the tenure is ideal because interest is highest in the initial months. It’s also a smart move when your loan carries a high interest rate or your lender offers low prepayment charges.

The ideal time for partial payment of a personal loan is when your EMIs feel heavy or you want better monthly cash flow without closing the loan completely. A partial payment reduces your outstanding balance, helping you lower your EMI or shorten the tenure. It can also improve your credit score by reducing overall debt.

Also, read – What is a Subsidized Loan?

Impact of Prepayment/Partial Payment on Your Credit Score

A prepayment credit score impact is generally positive because closing or reducing a loan lowers your overall debt, improving your repayment profile.

Partial payment of personal loan is generally done when EMIs feel heavy or to free up more of your monthly income. A partial payment brings down the outstanding principal, helping you reduce EMI or shorten the loan tenure. The partial payment credit score effect is also positive, as it lowers your credit utilisation and shows responsible debt management.

Conclusion 

If you are looking for instant personal loan, head to Tata Capital’s website. We offer personal loans for self-employed as well as salaried individuals at attractive personal loan interest rates. Before applying for the loan, check your personal loan eligibility and use our personal loan pre-payment calculator to plan your finances. 

We allow both partial payment and prepayment of personal loans after the lock-in period. To know more about these policies, log on to our website today!

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FAQs

Do all lenders allow personal loan prepayment or partial payment?

Not all lenders permit prepayment of personal loan or partial payment of personal loan. Each lenders’ policy varies. The frequency, amount, timing, etc., of the prepayment or partial payment will vary depending on the terms and conditions of the loan.

What are personal loan prepayment charges in India?

 

As per Tata Capital, prepayment of personal loan costs 6.5% of the outstanding principal if foreclosed within 12 months of disbursement, and 4.5% if foreclosed after 12 months.

How does partial payment affect my loan?

 

Partial payment of a personal loan reduces your outstanding principal, lowering interest cost over time. It may also shorten tenure or reduce your EMI, depending on the lender’s recalculation.

How can I calculate savings from personal loan prepayment?

 

Using Tata Capital’s pre-payment calculator, you can enter your outstanding amount, interest rate, tenure, and part-payment value to model revised EMI or reduced tenure and compare interest saved.

Does prepayment or partial payment affect credit score?

 

Yes, the benefits of prepayment of personal loan or partial payment of personal loan include an improvement in your credit profile. Both the options help in reducing debt and showing that you manage finances responsibly, which strengthens creditworthiness.

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