- June 28, 2020
- Posted by: Ganeshcbani
- Category: Blog
Without interest charges on your credit card for the outstanding sum, personal loans attract some of the highest interest rates. Personal loans are often between 15 and over 20 percent, since they are often unsecured in nature. Nonetheless, a personal loan is common in the country because it helps to address a temporary or urgent need for money. Personal loans are also offered by most banks in the country with many differences in rates and expenses in order to buy long-term purchases, marriages, health care or even vacations. Furthermore, if a personal loan may be prepayment or partly paid, other benefits are available to the borrower.
Second, if prepaid payments can be made in full fairly early in the loan term, a borrower appears to save money on interest. A personal loan typically has a lock of around one year in which the whole remaining balance will be prepayment.
For example, if the personal loan is Rs . 2 lakh at 15 percent and the monthly EMI is Rs. 4758 for a term of five years. The customer would have paid Rs. 29,039 to pay premiums at the end of the first year and Rs. 28,057 to pay interest. If the customer now chooses to pay the entire amount in advance, he will pay Rs.57422 less in the form of interest.
Another example is if a loan of Rs . 3 lakh is taken for a period of 5 years, 15%, you will have to pay an additional interest of Rs. 1.28.219. The breakdown reveals that you pay Rs. 42.086 for the first year or around 33% of your total interest, Rs. 35.084 or 27% of your total interest sum for the second year, while you pay Rs. 26.956 for the third year or Rs. 17.522 for the third year or Rs. 14% for the third year and Rs. 6571, or 5% for the final year.
The trick is simply to pay the entire amount in full in the lifetime of the loan so that one can reap the advantage of losing interest. But even in a later period when the customer may have paid a lot of interest, if he has excess cash, it is always better to pay the loan in advance and take the monkey off your back.
Nevertheless, some banks have interest rates of 3-5% when a borrower wants to prepay a loan. The Reserve Bank of India recently told banks to avoid paying customers by pre-closing a loan account, but only on ‘floating’ loans. Since most personal loans are based on a fixed rate, the rule is not applicable. Nevertheless, some banks in the public and private sectors do not charge anything in advance. For this situation, there is a major benefit that a borrower can use unused cash by paying a loan for advance. It is simple economics-if the idle money in your hand earns you less if you stay in a bank or invest in another bank, compared to your personal loan interest, it is wiser to pay the loan.
Payment of part
A partial payment of a personal loan is made if you have a lump sum of idle money, but it is not the total outstanding loan amount of your principal. Part payment works as it decreases the outstanding value of the balance, which in effect lowers the EMIs and the overall interest that you pay. Nonetheless, it is important to note that it helps only if you make a large amount of lumsum money as part payment.
It is a easy but successful way to save your money, as the part payment sum is deducted immediately from your principal excess as of the day / month of the contract. If you have a Rs. 3 lakh loan of 15 percent for 5 years, you must pay an additional interest of 1, 28,219 (as shown above). In the case of a nominal partial payment of rs. 50,000/- after the 6th EMI, 32 percent of your interest will be saved.
Normal personal loan repayment partial payment
There is a direct connection to the amount you pay partly and the time you save it to reduce your interest production. Nevertheless, paying your personal loan very Small does not help, particularly if you have advance payments.
There is another aspect payment benefit. A partial payment on a personal loan does not have to be made once. This can be more than once and a daily lump-sum payment can be made. It will help increased EMI rates and the average interest charged. Also when the prepaid charge applies to each loan, if a substantial amount is routinely returned, the benefits of a decrease in the overall interest charged are significantly greater. The major problem in part of the charge, however, is that many banks do not approve it when it comes to personal credit. The banks / NBFCs have a term lock-in period and are subject to the part payment amount (both EMI multiple and Principal Outstanding percent).
Credit rating effect
When paying a permanent personal loan, there is no immediate impact on your credit rating, so in the long run a full advance payment essentially closes a debt account to increase your credit rating. On the other hand the partial payment of a loan has no effect on your credit rating, which in turn allows you to repay the loan completely in the specified term.
An old adage suggests that you will borrow and repay as soon as possible. This is particularly valid for personal loans, which can rip off at a high rate of interest. When you can pay a loan in full or half, it is better to do without much thought.