Is personal loan prepayment a good idea? Here’s what you need to consider | Mint

Personal loans are opted for by those who want funds for diverse needs without the need for collateral. While getting a personal loan, borrowers mostly look for interest rates, EMI payments, and the tenure of the loan to estimate how it would impact their finances. Keeping these points in mind helps the borrowers fulfil one of the most significant responsibilities, which is paying the loan on time.

In order to save interest costs and EMI payments over time, some borrowers prefer to pay their loan amount before the due date.

What is loan prepayment?

When you pay off your part or the entire loan amount early or before the due date, it is called loan pre-payment. However, some banks may levy a prepayment fee over clearing your dues early. This fee is mentioned in the loan agreement.

• Partial prepayment: If you pay a part of your loan amount early, it is called partial prepayment of the loan. Borrowers mostly opt for this option when they have borrowed a large amount.
• Full pre-payment: If you fully repay the loan amount before the due date, it is referred to as full pre-payment of the loan. All personal loans have a lock-in period. Repayment after this period and before the due date will be called pre-payment of the loan.

Paying the loans before due dates will help save interest costs and lower EMIs; however, this is not always a good idea.

In conclusion, prepayment of a loan may seem like a suitable option to save some money on your loan. However, before choosing this option, check your loan agreement for prepayment charges and repay the loan early only if you are able to save some money on your loan.

(Note: Personal loan interest rates and other provisions keep changing with time. Readers are advised to check the relevant bank’s official website for the latest updates.)