How Personal Loan Prepayment Can Help You?

Personal loans are a popular financing option for various needs, from consolidating debts to funding home renovations. However, if you have taken a personal loan, you might need help with high monthly payments and a long repayment period. This is where the personal loan part-payment calculator comes in. Prepaying your loan can help you save money on interest, reduce your debt burden, and even improve your credit score. In this article, we will discuss how personal loan prepayment works and the benefits it can provide you.

 

What Does Loan Prepayment Imply?

 

Prepayment of a loan means paying off some or all of the outstanding loan balance before the scheduled due date. It can be a lump-sum payment or several smaller payments made over time. Prepayment reduces the principal amount owed and can result in savings on interest charges, as interest is calculated based on the outstanding principal balance. 

 

For example, if you have a personal loan part-payment calculator with a fixed repayment schedule of 36 months and make a lump-sum payment that covers the remaining balance after 18 months, you will save on the interest that would have accrued during the remaining 18 months. Some lowest interest rate personal loans may have prepayment penalties, fees lenders charge for paying off the loan early. It’s essential to review your loan agreement to determine if prepayment is allowed and if there are any penalties for doing so.

 

What Is The Procedure For Repaying A Personal Loan?

 

A personal loan part-payment calculator allows you to pay off a portion of the outstanding balance before the scheduled due date. Doing so reduces the principal amount owed and saves on interest charges. 

 

Let’s illustrate how personal loan prepayment works with an example:

 

Let’s say you took out a personal loan of Rs. 5 lakhs with a fixed interest rate of 12% for a repayment period of 36 months. Your monthly instalment would be Rs. 16,624, and you would pay Rs—98,267 in interest charges over the loan’s tenure.

 

After making regular payments for 12 months, you receive a bonus from your employer and decide to prepay a portion of the outstanding loan balance. You have two options:

 

• Prepay a lump sum: You can make a one-time prepayment of Rs. 1 lakh. This will reduce your outstanding loan balance to Rs. 3.67 lakhs and your new monthly instalment will be Rs. 12,354. Doing so would save around Rs. 11,374 in interest charges and reduce your loan tenure by six months.

• Increase your monthly instalments: Another option is to increase your monthly instalment payments by Rs. 2,000. This will keep your loan tenure the same, but you will pay off your loan faster and save around Rs. 9,000 in interest charges.

 

It’s important to note that some lenders may charge a prepayment penalty or processing fee for making a prepayment, so it’s crucial to review your lowest interest rate personal loan agreement before making any prepayments.

 

Benefits Of Personal Loan Prepayment

A personal loan part-payment calculator can provide several benefits for borrowers, including:

 

• Saving on interest charges: By prepaying your loan, you can reduce the outstanding loan balance and save on the rate of interest calculator over the loan’s tenure. This can result in significant savings, especially for loans with high-interest rates.

 

• Reducing debt burden: Prepaying your loan can help you reduce your overall debt burden and improve your financial situation. It can also improve your debt-to-income ratio, making you a more attractive borrower for future credit applications.

 

• Improving credit score: Consistently making on-time payments and reducing debt can improve your credit score. By prepaying your loan, you can reduce your outstanding debt, positively impacting your credit utilization ratio and improving your credit score.
• Flexibility: Prepaying your lowest interest rate personal loan can give you more flexibility in managing your finances. It can free up cash flow, allowing you to redirect your funds toward other financial goals or emergencies.

 

• Shortening the loan tenure: Prepaying your loan can help you pay off your loan faster and shorten the loan tenure. This can give you peace of mind and financial freedom.

 

Summing Up!

 

A personal loan part-payment calculator can be a powerful tool for borrowers to reduce debt, save money on interest, and improve their credit scores. By prepaying a portion of the outstanding loan balance, borrowers can reduce their debt burden, shorten their loan tenure, and free up cash flow for other financial goals or emergencies. 

First, however, borrowers should review their loan agreement with the help of a rate of interest calculator to determine if prepayment is allowed and if there are any penalties for doing so. With careful consideration and planning, personal loan prepayment can help borrowers achieve greater financial freedom and security. Overall, personal loan prepayment gives borrowers more financial flexibility and control over their debt, allowing them to achieve their financial goals more effectively.