Selecting the right personal loan rates of Interest is essential because it may significantly increase your liabilities. A quick glance at the loan summary illustrates the significant effect of interest on your EMI payments. You can put things right by using the personal loan prepayment option.
Prepayment refers to the complete or partial payment of the outstanding loan balance. The total burden from interest is lessened. Although a complete prepayment may not be everyone’s cup of tea, it is definitely possible to plan ahead and carry out a partial prepayment on a personal loan in real time!
If you haven’t applied Check personal loan required documents and part-prepayment policies of potential lenders and pick the one that charges the least or nothing at all.
Personal Loan Prepayment
Every debt entails risk for the borrower. Personal loan borrowers must pay back the loan amount plus interest over a predetermined amount of time. The monthly payment made by the creditor is also referred to as the EMI or Equated Monthly Instalment.
The loan amount will be liquidated at the end of the term if the EMI is paid on schedule and in full each month. The choice to prepay or make advance instalments is available to borrowers. The main objective behind these prepayments is to save on the interest component.
Learn more about the prepayment idea and how much interest you can save using the prepayment calculator.
Knowing when to prepay a personal debt is only half the battle won. The sooner done, the more the savings. If your personal debt has a 5-year term, try to partially pay it off within the first 2-3 years. The reason is that the initial year’s interest payment will probably be much higher. Also, check the personal loan prepayment charges of various lenders before choosing the best lender.
The Concept of EMI
It is important to understand the idea of the EMI before delving into the Prepayment Calculator’s features.
Equated Monthly Instalment is what EMI stands for. It represents the sum a borrower must repay monthly for a particular loan term. The following three variables affect personal loan EMI:
- Principal amount borrowed
- Rate of interest
- Loan repayment tenure
The EMI calculation can be challenging manually. Better to use EMI Calculators accessible online. Most financial organizations host these calculators on their official websites.
Using the EMI Calculator is easy. Simply enter the loan amount, loan interest rate and loan tenure. The calculator instantly calculates the applicable EMI on entering this data.
Principal repayment and interest repayment are the two components that make up an EMI. Both of these sums are variable. Typically, the interest component is greater in the beginning. As the loan is repaid, the amount steadily decreases.
The Concept of Prepayment
Throughout the loan tenure, the borrower’s fixed obligation is to make the EMI payment each month. Borrowers can make a prepayment on the loan account occasionally if funds are available. This prepayment is nothing more than a credit advance and reduces the loan’s interest load.
Is it advantageous to prepay the personal loan you have obtained?
Most certainly, Yes. Financial institutions impose a fee for early loan repayment. Why? Well, prepayment by the customer lowers the rate of interest that the lender would otherwise earn over the extended time. So, loan providers impose prepayment fees as compensation for the possible revenue lost. Prepayment penalties differ significantly from lender to lender.
In Conclusion
According to an ancient proverb, one should borrow as little as possible and pay it back as soon as possible. This is especially true for personal loans interest rates, which can be a major swindle due to their high-interest rates. It’s best to do it if you can prepay or partially pay off a debt.