Looking for a way to end your loan repayment tenure early?
Nowadays, lenders are providing a prepayment facility to let their customers end their tenures early.
Personal loan prepayment is actually early loan repayment, either in full or part. This allows customers to repay their loans (including outstanding interest) before its expiry date. You also can use a prepayment calculator and study the impact of your prepayments.
Now, what is a loan prepayment calculator?
A personal loan prepayment can happen in two ways, i.e., full prepayment and part payment. Now, a personal loan prepayment calculator is an online financial tool used to calculate EMIs payable on your loan amount each month. It considers the loan amount, interest rate, part-payment amount, and tenure to provide you with an exact outstanding EMI amount.
Apart from this, using this calculator, it is possible to find out vital aspects like:
It can be quite difficult and time-consuming to manually calculate the EMIs. But an online loan prepayment calculator can give a head start in this direction.
Rate of Interest (P.a)
Loan Tenure (Months)
Here is a step-wise guide to using an online calculator to prepay loans. The following steps will tell you how to use this EMI calculator with prepayment with ease.
After providing all these values, you will get an accurate EMI for your loan. The loan prepayment calculator will automatically give you the revised tenure and EMI value.
Here are the various benefits of prepaying your loans.
Advantages of full prepayment
Firstly, you can make a full prepayment of your loan considerably early into the loan tenure. With this, you can end up saving a lot in interest repayment. A personal loan generally comes with a lock-in of one year. After that, the entire outstanding amount can be prepaid.
Making a repayment in the later stage of tenure will also help you pay less interest. So, in case you have surplus funds with you, consider prepaying the loan and get rid of the debt burden.
Benefits of partly repaying a loan
You can make a part-prepayment happens when you have a certain sum of idle money that is not equivalent to the outstanding principal amount.
Part prepayments need not be done only once. You can do it more than once to reduce your EMIs and interest rate considerably. However, a very small sum of part payment for a personal loan will not help if there are prepayment charges.
Impacts your credit rating positively
There is no immediate impact of prepayment on credit ratings in a positive way.
In the long run, fully prepaying personal loans will boost your credit scores. On the other hand, part prepayment will not affect your credit scores, but it will reduce your debt burden. Thus, part payment of the loan will make it a little easier for you to repay your loan within the prescribed tenure.
An old adage states that – “One should borrow little and pay as soon as possible”. This statement is true for loan prepayment.
Thus, personal loan prepayment offers a big advantage to borrowers.
Not all financial institutions charge prepayment fees. But there are some which do incur such costs. These fees vary between 2 – 5% on the outstanding principal amount. You may want to check these charges with your bank before applying for a loan.
Making small part payments does not help if there are prepayment charges. However, if the lender charges nothing for part prepayment, you can save interest repayments by regularly paying a small lump-sum amount.
By now, you likely have a clear picture of the loan prepayment calculator, its benefits, and how it works. Cash loan prepayment significantly reduces the burden of debt and improves your credit rating (not impacted by part payment) in the long run.
Calculating these EMIs manually is cumbersome, but an online tool makes it quite easy for you. You can make it a habit to use this to manage and plan your finances going forward.
If you plan for a personal loan and want to check the EMIs payable, install the Navi App. With Navi, you can get loans up to Rs.5 lakh at the best rates.
Ans: All banks offer prepayment of your personal loans. However, in the case of part payment, only a few banks offer this facility.
Ans: It depends completely on you. If you desire to save on interest and get rid of your debt burden, paying up your loan early can be a good choice. However, certain banks levy prepayment charges as well. So, you must be mindful of that.
Ans: Sometimes due to fund insufficiency, it may not be possible to pay out the EMIs. In that case, the tenure of a loan will increase. But skipping EMIs is not a good idea. It does not give a good reflection on your creditworthiness. Hence, you must borrow as much amount as you repay regularly.
Ans: It is always better to confirm with your desired bank.
Ans: You can calculate your EMIs with the given simple formula:
EMI = PxRx(1+R)^n/[(1+R)^n-1], where P refers to the principal loan borrowed, n the tenure of the loan in months, and R is the monthly interest rate.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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