Personal loans: If you want to prepay the loan, be aware of these points
Personal loan: It is not unusual to borrow loan and wanting to repay it before its tenure is about to conclude. It could happen when your salary increases during the loan tenure or there is a windfall of cash. There could also be other reasons such as switching of loan to another lender or something else.
Although this is a routine thing to happen, investors be aware that this costs extra money. For instance, one may have to pay a flat prepayment penalty on outstanding personal loan which could be as high as 4 percent.
Additionally, lenders may not allow borrowers to prepay the loan until after payment of first few EMIs.
If you want to prepay your personal loan, you must be mindful of the following points.
Prepayment of loan: Remember these key points
1. Typically, a high interest is levied on outstanding loan when the loan is paid in first couple of years. For instance, HDFC Bank prepayment closure charges of 4 percent on outstanding amount upto 24 EMIs.
2. The interest reduces with the passage of time. For instance, HDFC Bank imposes 3 percent of outstanding principal after 24 EMIs but before 36 EMIs. After 36 EMIs, the private sector bank charges 2 percent of prepayment charge on outstanding principal.
3. There could be different rules for partial and full repayment of loan.
4. Apart from prepayment charges, goods and services tax (GST) is charged separately.
5. One of the key goals to prepay partial personal loan is to reduce your monthly obligations. But before doing that, one should make sure that one doesn’t have better investment opportunities for the money you are deploying towards repayment. Additionally, it is advisable to ,make sure the prepayment charges are not exorbirant.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
