Personal Loan Prepayments: Should You Go For It Or Not? | Money In Minutes

1. PERSONAL LOAN PREPAYMENTS: SHOULD YOU GO FOR IT OR NOT? Personal loans​​have gained huge popularity in the last few decades. Almost every middle-class family thinks to opt for a short term loan or personal loan​​to aid their financial shortcomings. There are many valid reasons for it becoming a preferable option for almost everyone. Some of the reasons include: ● Unsecured nature​: Personal loans don't require any collateral. They are unsecured loans which make it most affordable as you do not need to back it up with any of your assets. ● Wide availability​: They are very easily available. There are many banks and NBFCs that lend personal loans​ to individuals. ● Low-interest rate​: Earlier, personal loans​​came with high-interest rates but with the advent of technology, the interest rates have been decreased. ● Flexible repayment tenure​: It can be repaid according to your financial situation. There is no rigidity in the repayment schedule. ● Minimal eligibility criteria​: To have a personal loan, you don't need to fulfill a list of eligibility criteria. It only has some basic requirements. ● Online processing​: With the introduction of fintech lending systems, online processing has been made very simple and smooth. You just need to fill some requisite applications and submit some documents, and then the loan amount will be directly credited to your bank account. ● No end-use restriction​: You can use the money from the personal loan you have taken to fulfill any of your personal needs and desires or to use it for your business. All these facilities that are offered with personal loans attract middle-class families and they go for it without a second thought. They think of it as an ideal option to fulfill their needs and wants or to tackle any emergency. An individual can opt for a personal loan as per his/her repayment to tide-over monetary crises. This includes many reasons of any kind such as paying medical bills, debt consolidation, bearing marriage expenses, funding a vacation, and so on. One more reason for its popularity among middle-class people is that it comes with the option of prepayment and part-payment. Why Part-Payment/Prepayment?

2. The best part about personal loans is that it allows the borrowers to pay the loan amount before the pre-fixed tenure. Generally, a person takes a ​short term loan​​or​​personal loan to meet their financial shortcomings. Once the purpose is fulfilled, they want to get rid of the loan as soon as possible, as personal loans​ charge interest, and no one wants to pay the interest rates and empty their pockets. There are two ways how a prepayment of a personal loan can be done- ● Full Prepayment ● Part Payment Full Prepayment As the name suggests full prepayment of a personal loan means to pay all the outstanding amount of the loan. It means thereafter, no amount is left to be repaid. It will help you to become debt-free early. Moreover, it will also help you to lead a tension-free life as it reduces much of the mental stress. You can save a lot of money as a full prepayment of a personal loan​​removes the burden of paying interest. You can save huge bucks that otherwise you would have spent on paying the interest. With the full prepayment of a personal loan, a borrower is always on the profitable side as there are many advantages of prepaying the loan sooner. However, some lenders have a lock-in period for the personal loan full prepayment. Mostly, the lock-in period in banks is one year. In this scenario, a borrower is not allowed to close their personal loan before the end of the period of one year. If you are willing to repay the loan amount within the first year only, you will be charged with pre-closure fines. This is done with the view of letting the lenders also earn at least the minimum profit. Thus, serving the lock-in period is mandatory for all borrowers. As soon as the lock-in period ends, an individual can opt for a full prepayment if his/her finance allows. A person can save almost half of the interest payable if they close their loans just after the end of the lock-in period. Part-Payment In this type of prepayment, you can pay your loan amount in parts, i.e. in small amounts. When a partial payment is made towards the personal loan, it is said to be a part-payment. Not many people can pay the full loan amount all at once as it requires a huge amount of money. However, most people look for part-payments as they don't burden the person at once and are budget-friendly. Partial payments can be done even with small savings. A partial payment brings the outstanding principal amount down hence the interest payable gets reduced. So if you are not able to pay the full personal loan amount, don't just sit back and pay nothing. Instead, you should definitely go for a part-payment option to reduce your debt burden.

3. There are some terms and conditions that you need to keep in mind before opting for part-payment of the loan. These are: ● Firstly, you need to be out of the lock-in period. Otherwise, you will be liable to pay some fines. ● Secondly, the number of part-payments you do. Some of the lenders keep a specific number of part payments whereas some allow it to do as many as times the borrower wants. ● Thirdly, the amount of part-payment. Some lenders allow a particular percentage of the outstanding principal amount to be paid as part payment. So this was all about the information on prepayment of ​personal loans​. Now you can make the final decision, do you want to go for it or not. You should consider the outstanding principal amount, tenure left, and pre-closure fines before opting for the prepayment. Original Source: https://blog.moneyinminutes.in/personal-loan-prepayments-should-you-go-for-it-or-not/