Personal debts that still need to be utilized should be canceled as soon as possible in times of global epidemic. Yet, if a private loan sum has already been expended on items, you should endeavour to make the maximum payback as soon as possible. The future is unclear, and continuing to pay interest money is pointless. You may apply to lender banks to close your prepayment loan account. After entering proper data into a personal loan prepayment calculator, the lender bank would return the sum to be paid for account closure. Consider if the lender you’ve contacted allows you to repay the loan before you apply for it. When you have a surplus of cash, you may sometimes direct it to your loan and pay it off before the end of its term.
How to understand the Personal Loan Prepayment Fee?
There are two methods to pay off a personal loan: full prepayment and half payment. A personal loan calculator for prepayment is an online financial tool that calculates the monthly EMIs on your loan amount. It takes into account the loan amount, interest rate, part-payment amount, and duration to calculate the actual outstanding EMI amount. This way you can calculate the prepayment charges on personal loans.
What Is the Process of Using a Personal Loan Prepayment Calculator to Calculate Prepayment Fees?
A personal credit EMI calculator with prepayment assists in revising the loan need of EMI. In the relevant areas of the prepayment personal loan calculator, you must input the loan amount, duration, and interest rates.
If you already have personal debt, the personal loan prepayment calculator will ask for the remaining loan sum, EMIs paid to date, prepayment amount, interest rate, and loan term. By using a personal loan calculator with a prepayment option, you will discover how much money you would save on EMIs.
Procedure For Prepayment of Personal Loan
Now that you have a better understanding of the concept, let’s go through the basic approach for calculating prepayment charges on personal loans.
- Consider the foreclosure costs if you have opted to foreclose on your loan. Similarly, if you are making a partial prepayment, consider the prepayment penalty. You may use a personal loan prepayment calculator to help you with this.
- Next, contact your bank’s local branch to negotiate the prepayment. You may also submit a request online.
- Make sure you have all of the necessary documentation on hand.
- After submitting your request, you may be called by a person who will assist you with the specifics of any fee/penalty and take your payment.
Benefits of Prepaying a Personal Loan
1. Get Rid of The Burden of The Loan Faster
Borrowing money for a personal loan is a great option if you need extra cash. But, with an unsecured personal loan, you must repay the money you borrow in monthly instalments. The EMI payment can also eat into your monthly savings. Personal loan prepayment is a great way to reduce your loan principal and pay off your loan early. If you have some extra money, it is a good idea to pay off your loan as soon as possible. You have to pay a nominal fee for prepaying the personal loan.
2. It Lets You Save Interest Rate
A great way to save money is to pay off your loan early. Prepayment can be a great way to pay off your loan early and save money on interest, but many people need to learn how it works or that it can save you money. If you have a home equity loan, it’s even easier to prepay. You can pay your monthly payment all at once, and the lender will reduce the principal balance on your loan immediately. It helps you decrease the interest on the loan you will pay in your lifetime.
3. Improves Your Credit Score
It’s important to know that the credit score is a critical part of your financial life and can make or break your ability to borrow money. If you have a loan, you can prepay some of it and improve your credit score. Prepaying your loan is an important part of debt management and the first step toward improving your credit score. Most loans are made based on your credit score. If you have outstanding loans, that will affect your credit score negatively, but if you pay them off in full or partially, your credit score will also go up, which means you will qualify for a better deal on loans in the future.
The Drawbacks of Prepayment of Personal Loan
1. Having to Make Expensive Payments
Despite its benefits, prepaying a personal loan comes at a significant expense: you’ll have to pay lump-sum instalments to erase the debt, restricting your financial freedom momentarily.
2. Penalty Fees for Early Payment
The RBI now forbids prepayment fees on private loans with variable interest rates. On the other hand, those who take out personal loans having fixed interest rates are not subject to this limitation. Prepayment charges on personal loans of up to 5 per cent of a personal loan’s outstanding principal amount are frequent. Prepaying a fixed-rate personal loan might reduce interest savings. Many lenders additionally restrict part-payments or foreclosure costs on personal loans until numerous payments are received.
3. Liquidity Is Being Harmed
Many borrowers exhaust their cash assets or current investments to repay their debts. Yet, doing so may impair their capacity to cope with any financial crisis that develops as a result of events such as job loss, medical issues, or other unanticipated occurrences. You may have to take out higher-interest loans to meet your financial objectives if they use current assets. Existing personal loan clients should select prepayment only if they have enough emergency funds to prevent this problem. They should also refrain from leveraging current assets for unavoidable financial goals.
Personal loan prepayment is appealing for current borrowers since it helps them minimize their interest expenses and total repayment load. However, if the lender imposes prepayment penalties and a drop in liquidity, this may be a disincentive. You may lessen your repayment load and interest expense by shifting your loan to lenders that offer cheaper personal loan interest rates.
Read more at Piramal Finance to learn about personal loans and more.