There are times when you may require funding for personal expenditure. At such times, you could apply for a Personal Loan, which has several attractive features like zero collateral, easy repayments over a short duration, convenient documentation processes. Personal Loans also give you a fair degree of independence in the end usage of the funds. Bajaj Finserv gives you instant online approvals of up to INR 25 lacs on your Personal Loan.
However, due to their unsecured nature, Personal Loan interest rates are often higher, ranging from 15% to 20%. If you want to repay your loan faster, you could consider the option of prepayment.
What is Prepayment and How Does it Work?
The partial or complete repayment of a loan by the borrower before the due date is called prepayment. If you have an idle but substantial amount of funds, it’s always a good idea to make a prepayment and reduce the EMI on your loan.
Before you start thinking about whether to prepay or not to prepay, you should first understand how prepayment works. Prepayment can be done in two ways:
- Full Prepayment or ForeclosureThrough a loan foreclosure or full prepayment, you can repay the remaining loan in a single payment instead of continuing payment via EMI. Most Personal Loans need a minimum of one year of tenure to be completed before you can opt for foreclosure. Full prepayment also helps in reducing the amount of interest you have to pay.
- Partial PrepaymentThis option can be availed if you do not have the full loan amount, but only a lump sum that can reduce both your EMIs and the tenure of your loan. Part prepayment can be done several times over a financial year, provided that the amount prepaid is in multiples of a single EMI.
Prepayment can be beneficial, but you have to take into account the prepayment of Personal Loan charges that several banks apply a foreclosure penalty. If there are any prepayment charges, part prepayments with relatively small amounts are likely to place a heavier burden on you. Bajaj Finserv allows borrowers to prepay or close their Personal Loans easily. Borrowers can prepay their loan up to 6 times in one financial year, with the minimum amount being no less than 3 EMIs.
Is Prepayment a Crucial Factor in Choosing Your Lender?
Unlike a home loan, repaying a Personal Loan is comparatively easier due to the shorter time frame and reduced amount of funds involved. The only drawback of Personal Loans is their higher interest rates. Hence, prepayment is a great way to reduce the amount of interest you need to pay. When the borrower repays the loan partially or wholly before the due date, certain effects of prepayment on the Personal Loan lender come into play.
Due to prepayment, the lender would have to forego some of the interest that a borrower would have paid if he had stuck to the original loan agreement. Therefore, most banks apply prepayment penalties. This is so that the borrower has to decide if it is more beneficial to prepay along with the penalty or to continue with the agreed monthly EMIs. In such a scenario, prepayment charges can play a crucial factor in deciding your Personal Loan lender. Bajaj Finserv Personal Loan, with its added benefits, is an attractive option for those seeking a Personal Loan.
Personal Loans are extremely useful in crunch situations. And by understanding how prepayment works, you can make an informed decision.