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Pros and cons of prepayment and part-payment of Personal Loan

Personal Loan

The advantages in the prepayment or the part-payment of personal loans do exist. Hence, personal loans are popular in our country. Right from the application process till the date of its repayment, personal loans provide a number of benefits.

Personal loans are convenient than the other types of loans or credit cards. You can avail personal loan for any purpose such as weddings, purchase of vehicles or consumer durable goods or even for shopping apparels. But you must carefully go through the prepayment and part-payment clauses pertaining to personal loans. It is better to weigh the concept in terms of its pros and cons.

Prepayment of personal loans

This term refers to the full repayment of the loan amount before the completion of tenure of the loan. This helps the customer from saving of interest amount to be paid in future. But please note that a lock-in period of one year is applicable for personal loans. It means after the completion of one year, you can think of repaying the entire loan amount.

It is always advisable for the customer to prepay the entire loan amount immediately after the completion of one year period. You should not wait by paying more interest during the loan tenure. If you are paying it at an early stage, then you are saving considerable amount of interest. Imagine a situation that you are at the later stage of the loan tenure and you have surplus cash in your account. What will you do? Wait for the loan tenure to end or prepay the loan? Well, it has been observed that it is better to prepay even at a later stage because you will be saving some amount of interest.

Another advantage offered by some of the banks is the waiver of the prepayment penalty. Yes, some banks so charge prepayment penalty. You need to confirm with your bank before applying for personal loan amount. It is better to select the bank that does not charge prepayment penalty. Thus, along with substantial interest amount, you are also saving the prepayment penalty.

Part-payment of personal loans

Part-payment refers to paying a certain portion of your personal loan amount. You have surplus funds in your account but it is not equivalent to the personal loan amount you have availed. You can definitely make a part-payment of the loan amount. It will help in reduction of the principal amount as well as the interest to be paid in future. You will make sufficient savings by this payment.

But a disadvantage arises when the part-payment is not sufficed to the loan amount. If the part-payment is done for a small amount, then please note that it will not help at all. Moreover, if the bank is charging prepayment penalty, then you are incurring more costs instead of the savings. Hence, accumulate a substantial amount in your account and then make a part-payment of the personal loan amount.

Conclusively, prepayment and part-payment of personal loans are advantageous for the customers. But one must check for the charges, amount and the loan tenure before doing so.

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  1. In case of prepayment, there is almost no loss. If you pre pay the amount, you are going to save a lot of money that you have to pay the bank in form of interest. Many banks do not levy pre-payment penalty. Even if there is penalty on pre-payment, it is very less (1% or 2% confirm with the bank before taking loan). If you u compare the amount of penalty and interest that you have to pay, you will prefer prepaying the loan. In case of part payment, you should consider paying big portion of the principal value. If you are paying small part of principal value, you may lose some of your hard earned money.

  2. Based on this article, prepayment would be the best option to go with, compared to part payment. At least with the prepayment, the person taking the loan will get rid of paying all the extra interest. However, with part payment, there’s isn’t much benefit as the person will still end up paying quite some amount in interest. Guess, it’s best to wait for the loan term to expire and just pay the EMI in case you don’t have sufficient funds to completely close the loan.

  3. This is also a very nice article.The difference between pre payment and part payment is very clearly explained. Yesterday I came through a term called prepayment charges and ma happy that today I could use it for a comparative study.

  4. Any financial decision or decision with regard to money should not be done in haste or without proper research. Prepayment and partpayment may sound synonomus but are actually very different. Checking and rechecking with banks and financial institutions and finding the bank which suits or fits with the requirement should be choosen.

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