Are you curious about making your loans easier to handle? Imagine having superpowers that help you reduce the money you owe and save on extra charges.
We're about to uncover the secrets of part-payment, part payment meaning, pre-payment, and pre-closure of loans. These are like magic tools that can make your loan journey smoother and save you some extra rupees.
What is Part Payment of a Loan
Aspects
Part-Payment of Loan
Reduces Principal Amount
Yes
Effect on Interest Rate
Stays the Same
Impact on EMI
EMI Becomes Smaller
Effect on Credit Rating
Little to No Impact
Part payment is like giving your loan a small haircut. When you have some extra money but not enough to pay off the whole loan, you use that extra cash to pay off a part of your loan.
Advantages: -
1. Reduces the amount you owe, known as the principal amount.
2. Leads to smaller monthly payments (EMIs).
3. Lowers the total interest you need to pay over time.
Frequency: -
You can do part-payment multiple times, making it a flexible option. However, some banks may have rules about when and how much you can part-pay.
Caution: -
Check for any prepayment charges or restrictions your bank may have before deciding to make a part payment.
Prepayment of a Loan
Aspects
Prepayment of Loan
Reduces Principal Amount
Yes
Effect on Interest Rate
Interest Rate Goes Down
Impact on EMI
EMI Becomes Smaller
Effect on Credit Rating
Can Improve Credit Score
Prepayment or part repayment is like using a turbo boost to pay off your loan faster. When you suddenly have some extra money, you decide to pay off a chunk of your loan, speeding up your journey to becoming debt-free.
Example: -
Imagine you borrowed money for five years, and after one year, you have some extra cash. With prepayment, you can use that money to pay off a part of your loan and save on personal loan interest rates.
Rewards: -
Some banks may offer rewards or incentives for choosing prepayment, such as additional services or benefits.
Caution: -
Be aware that some banks may charge a fee for the privilege of paying off your loan early, so always check the terms.
Pre-Closure of a Loan
Aspects
Pre-Closure of Loan
Reduces Principal Amount
Full Loan Repayment
Effect on Interest Rate
Stays the Same
Impact on EMI
No More EMI
Effect on Credit Rating
Can Improve Credit Score
Pre-closure is like finishing a game before everyone expected it. It involves paying off the entire loan before the scheduled time and declaring victory over your loan.
Application Process: -
To pre-close your loan, you need to apply to your bank or lending institution. They will calculate the final amount considering your outstanding obligations, remaining term, and interest paid.
Lock-In Period: -
Many banks have a one-year lock-in period for Personal Loans before allowing pre-closure. You can settle the loan after this time.
Caution: -
Collect necessary documents, like a "No-dues" certificate, from the bank after settling the loan.
Difference Between Part-Payment, Prepayment, and Pre-Closure
Aspects
Part-Payment of Loan
Prepayment of Loan
Pre-Closure of Loan
Reduces Principal Amount
Yes
Yes
Full Loan Repayment
Effect on Interest Rate
Stays the Same
Interest Rate Goes Down
Stays the Same
Impact on EMI
EMI Becomes Smaller
EMI Becomes Smaller
No More EMI
Effect on Credit Rating
Little to No Impact
Can Improve Credit Score
Can Improve Credit Score
Understanding part-payment, prepayment, and pre-closure can be like figuring out different strategies in a game. Here's a simple breakdown:
Part-Payment: -
It's like giving your loan a little trim. You use some extra money to pay off a part of your loan, making your monthly payments smaller and reducing the total interest. Think of it as levelling up your loan game, but remember to check the rules with your bank.
Prepayment: -
This is the turbo boost for your loan. You decide to pay off a chunk of your loan early, making you debt-free sooner. It's like taking a shortcut in a race. But watch out for fees – some banks may charge you for this speed boost.
Pre-Closure: -
Imagine finishing the entire game before anyone expected. That's pre-closure. You pay off the entire loan before the scheduled time, and voila – no more monthly payments. It's like declaring victory early. Just keep in mind that some banks might make you wait for a specific time before you can declare yourself the winner.
Summing Up -
So, what's the big picture? These loan tricks – part-payment, pre-payment, and pre-closure – help you handle your loans better. It's like having secret weapons to make your loan journey smoother. You can reduce the amount you owe, pay less interest, and maybe even finish the loan game earlier.
So, next time you're thinking about small personal loans, consider these cool tricks to make your financial journey more awesome. If you want to explore more about managing loans, check out the TATA Capital personal loan emi calculator for some great options.
FAQ
1. What's the difference between prepayment and foreclosure?
Prepayment is like paying part of the loan early, while foreclosure is finishing the whole loan before its time.
2. What happens in pre-closure in banking?
Pre-closure in banking is when you pay off the entire loan before the time it is supposed to end.
3. How does part prepayment reduce EMI?
Part prepayment can make your EMI smaller or reduce the time you have to pay
4. Does foreclosure affect your credit score?
No, finishing your loan early (foreclosure) can make your credit score better.
5. Can part prepayment reduce my credit score?
Part prepayment usually doesn't affect your credit score much. It can make paying off your loan easier.
28 February 2024
5 mins read
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