Personal loans are by far the most popular form of credit, whether it’s for a vacation, a festival celebration, the acquisition of new technology, or a wedding. They are reliable, can be used for many different things, are easy to get, and don’t need any kind of security. Despite how simple it is to use, it is one of the more costly options.
Due to the high-interest rates and the difficulty of making EMIs, many people who have personal loans are thinking about paying them off early or having their loans taken away. The personal loan prepayment calculator is usually a good idea for borrowers. But, they need to do a thorough cost-benefit analysis to make sure they are making an informed choice.
What do you mean by loan prepayment?
A loan is a duty for the borrower, whether it’s a house, a credit card, or a car. Borrowers are expected to pay back the amount they borrowed plus interest over a set amount of time. The monthly payment made by the borrower is also known as the Equated Monthly Instalment (EMI). If the EMIs are paid on time every month, the loan balance will be paid off in full at the end of the loan’s term.
Prepayments and advance payments are, nonetheless, a possibility for debtors. Saving money on interest is the driving force behind these prepayments. You can use a personal loan prepayment calculator to make a secure choice.
Benefits of the Personal Loan Prepayment Calculator
The perks of using a personal loan prepayment calculator are as follows:
- Easily become debt-free
You can save some money and deposit it as a prepayment of the loan’s principal to live a stress-free life free of debt. When you pay off a personal loan early, a portion of the principal will be waived, which lowers your EMI costs.
- Reduce the demand
Personal loans can be prepaid without having to make the whole payment at once. You can also partially prepay your loan balance. Even if you aren’t able to save any money on interest, the amount of debt you have will be on the lower side. The amount of unpaid principal is also reduced when you prepay a loan. As a result, the EMIs will be lower than the current interest rate.
- Reduce Your Interest Costs
At the start of your tenure, you must have enough money to repay the entire loan amount. A one-year lock-in term is common among banks. It implies that you will have a year to repay the debt, in full or in part. But, after the year is through, you can prepay the remaining loan and save a significant sum of money.
How Does a Prepayment Calculator for Personal Loans Work?
A personal loan EMI calculator that lets you make prepayments helps keep the EMI requirements up to date. The prepayment personal loan calculator needs you to put in the loan amount, how long you want to borrow the money, and the interest rate.
The personal loan prepayment calculator will need the loan amount, EMIs paid to date, the prepayment amount, interest rate, and length of your loan if you are already making payments on a personal loan. Using a personal loan EMI calculator with a prepayment option, you can figure out how much money you will save on the EMIs.
How Do I Use a Prepayment Calculator for a Personal Loan?
With the help of the process listed below, you can use the personal loan prepayment calculator:
Step 1: To set the loan amount, move the slider to “Loan Amount.”
Step 2: Use the “Tenure” slider to select the loan tenure in months or years
Step 3: Next, set the desired interest rate for your loan using the “Rate of Interest” slider.
Step 4: Select the “Part Payment Amount” using the slider.
Step 5: You can choose the payment months or years, using the calculator’s final and last slider. The EMI and the revised tenure will be shown by the personal loan prepayment calculator.
Why is there a price for prepayment?
When compared to the cost of lending, the cost of borrowing money from the bank is lower. The bank will receive the difference in the amount after lending it as profit for the duration of the loan. If the borrower plans to pay off the loan balance before the maturity date, the bank won’t get the interest rate it would have gotten if the borrower had kept paying back the loan until it was paid off.
Most banks charge a fee to the borrower who pays back their loan early to make up for the lost income. The prepayment fee will vary from one bank to the next and depend on how long the personal loan has been outstanding. The interest rate that banks usually charge is between 4% and 5% of the loan balance. Some banks decide not to charge a prepayment fee after 3 years have passed, while others give a reduction after the due date has passed.
The bottom line
Now, borrowers like to pay off their loans early as it lowers their interest payments and their overall loan balance. On the other hand, it can be tough to pay off a loan early as you might have to pay fees, and your cash flow will go down. If a borrower does not have much money, they may be able to refinance their personal loan to a lender with a lower interest rate. Piramal Finance is the place to go if you need guidance on how to go about getting yourself the maximum personal loan amount. To read more such articles, visit Piramal Finance right now!