Peersonal loans have a flexible repayment method and can be paid at your convenience. There are extra charges or penalty fees incurred if the prepayment is done after six instalments are paid. Borrowers can prepay loans in full or part payment. Borrowers should read the prepayment terms well in advance as mentioned in the loan document.
What are prepayments?
Prepayment of
personal loans simply refers to repaying the loan either partially or completely before the designated tenure. The early payment can reduce the financial burden of paying EMIs.
Personal loans have a slightly higher interest rate on a fixed basis. The interest rate does not vary or fluctuate, unlike secured loans. There are pros and cons to prepaying the personal loan.
Below are some of the advantages and disadvantages of personal loan prepayment.
What are the advantages of making a prepayment?
A personal loan generally has a lock-in period of six months to one year after which the entire outstanding amount can be prepaid. If you can afford the early repayment of the loan and clear off the debt, nothing better than this!
Improves credit score - A clean and spotless credit report with timely repayment records is more desirable and lenders feel secure in giving the loan to such borrowers. Foreclosure or prepayment of a personal loan is considered positive and helps to improve your credit score. An increased Credit score will benefit the borrowers to bargain for more beneficial terms for future personal loans.
Minimizes your debt burden - Being debt-free is a dream for many borrowers. It will be ideal if you have surplus funds for
foreclosure of a loan. It leads to a stress–free life, gives financial security, reduces the risk of financial failure and reflects zero liabilities.
Save on your interest amount - If you get an opportunity to prepay a part of the personal loan amount before the end of its tenure, it can reduce the overall interest payments. Some institutions may charge a prepayment penalty fee of 1-2.5% for such allowance.
Overall, prepayment or foreclosure of a personal loan often makes financial sense. The sooner you pay it, the more you save on the interest amount.
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