In the past few decades, personal loans have gained popularity with middle-class individuals. This is due to the many benefits that this loan provides.
- Nature that is not secured
- Wide availability
- Low-interest rate
- Flexible repayment tenure
- Eligibility criteria are minimal
- Online processing
- No end-use restriction
These are just a few of the many services a personal loan offers.
Unsecured personal loans are the most cost-effective as they don’t require you to hold them in any of your assets. It also has no restrictions on its use, making it ideal for personal and business needs. To tide over monetary crises, an individual can take out a personal loan according to their repayment. You can use it for any reason, including paying medical bills, consolidating debt, funding a vacation, or bearing marital expenses. A personal loan’s ease-of-use feature is its ability to prepay and pay part of it.
Personal loans are usually used when someone is experiencing a cash crunch. Most people want to repay the loan as soon as they can after determining the purpose of the loan. A personal loan allows customers to pay the loan before the term. Two ways to prepay a personal loan are available.
i) Full Payment
Full prepayment is the payment of all outstanding amounts. This allows you to get debt-free sooner and helps reduce stress levels.
On the other hand, a full prepayment saves you a lot of money that would have been spent on interest.
Prepaying the loan early can help borrowers make maximum profits. Some lenders require a prepayment period to repay a personal loan fully. Most banks have a 12-month lock-in period for personal loans. You are prohibited from closing your loan within the first year. If you do, you will be subject to pre-closure penalties. All borrowers must adhere to the lock-in requirements. Lenders will make the least profit from lending if this is done. If one’s finances allow, one can opt for full prepayment after the lock-in period.
A borrower may make a partial payment towards a loan by making part payment.
Partial payments bring down the principal amount, reducing the interest due. Full repayment requires a large amount of money, but partial payments can be made even with very small savings. Part payment can be an option if your finances don’t permit you to make a full prepayment. This will reduce your debt burden.
Although prepayments or part payments can be helpful, there are still some things you should consider before making your final decision. These points will help you calculate the real profit from a prepayment.
- Outstanding principal amount
- The tenure left
- Pre-closure fees
Prepayment of personal loans will yield the highest profit if done early in your tenure. It is important to calculate the potential profit before making a prepayment. If the profit is small, it might not be wise to spend your precious time and effort on a prepayment.