Because personal loans are disbursed quickly and require minimum documentation, getting one is simple. Loans are given with the understanding that the balance must be returned within a predetermined time frame. The principal amount of the loan and the interest rate are paid back each month in the form of an equal monthly instalment (EMI). Sometimes you wish you could just pay off your loan in full right away and be done with it. Certain banks permit borrowers to return their loans before the specified term has expired. Additionally, there are choices for paying back portions of the loan whenever it’s convenient for you.
What Is Pre-Payment?
A pre-payment, often known as an early payback, is a payment you make on your loan before it matures. Prepayments can be made in two ways: either by paying out the entire loan balance or by paying it off in installments. While banks are unable to prevent you from making prepayments, they may impose penalties on you. Prepayments are typically made in large amounts.
When Should I Choose to Pre-Pay My Loan?
It makes sense to repay a loan early, whether in full or in part, under the following situations:
- If you have a sizable quantity of money and can settle the balance in full or make a part payment without impacting your budget.
- If you choose a longer tenure, you can save money on the interest rate. Early repayment leads to a decrease in the EMI or a shorter repayment term within the same duration.
What Is Part Pre-Payment
When you have some extra cash on hand, but not enough to cover the whole principle balance of your ongoing loan. Making a partial payment, however, only makes sense if you have a substantial lump sum of cash. Paying two to five times your EMI amount at least once a year, or even more, is permitted by certain banks. It is advisable, though, to confirm that your bank offers you this service.
Penalty For Pre-Payment
Throughout the course of the loan, banks and non-bank financial companies (NBFCs) make money from the interest rates they impose on personal loans. The longer the tenure, the bigger the profit margin and the interest rate. The loan’s outstanding balance drops when a borrower chooses to make an early or partial payment, which has an impact on the bank’s profit margin. In order to make up for the lost profit, banks therefore charge a portion of the amount that is repaid. A percentage of the principal amount or the amount prepaid is often the penalty for partial prepayment.
Part Prepayment Calculator
A part-payment calculator helps you figure out how advantageous it would be to return your loan early. You can find an online calculator that calculates part pre-payment by simply entering the loan parameters, including the loan amount, interest rate, loan tenure, and the amount you wish to prepay.
Examine your loan documentation carefully to learn how to make partial loan payments. Getting a loan from a bank that provides the greatest services and no penalty policies is always a good option.
Part payment is a very useful practice as it helps you to manage your finances and plan your repayment schedule for the remaining amount (If any) of the loan.
Part-payment of the loan can reduce your financial burden since your EMI gets reduced (If any loan amount is pending) in the upcoming subsequent months. Bajaj Finance doesn’t charge any fees or penalties for making a part pre-payment towards your loan. This is an extra benefit, as the money that could have been saved by making a part-payment, is still saved and will not be charged.