Opting for a personal loan can be an effective option when you are desperately seeking monetary support for a short period. Since these loans do not come with any kind of security collateral, customers can enjoy a slightly better state of mind, when it comes to repayment. However, because of higher interest rates, customers availing the option often look for ways to clear off the debts at the earliest, before the schedule tenure. If you can afford, prepayment can be the best option to clear off the debts, without losing a big amount on the interest being levied.
Considering the interest rates and early payment part
Among the few negative traits; the interest rate, associated with a personal loan is usually higher, usually in the range of 15% to 20%. These loans can be repaid at an earlier stage, prior to the end of the actual loan repayment tenure. You must understand that any kind of prepayment would help in substantial savings for you in terms of the interest rates. After all, interest rates for any personal loan can be quite high.
Prepaying -Is it really a great option to consider during loan repayment?
Prepayment occurs when the borrower repays the loan before the actual due date. But the question, is prepayment a good option? Repaying the debts is always a problem. It is the common mindset. However, the young generation is becoming more responsible towards debt repayment. They prefer prepayment rather than late payments to manage their finances properly. If possible, they would always opt for prepayment to ensure a debt-free status. It also offers tremendous mental stability and peace of mind.
Getting rid from the burdens of debt
If it is possible to clear off the debts before the estimated tenure, you should get rid of the burdens of debt. If you are capable to prepay the loan amount back to the lender in full, a lot of money can be saved on the interest rate. These days, personal loans usually come with a lock post, a year from the actual date availed, when the entire outstanding balance amount can be prepaid. This said, you must keep in mind that it may not be the best option to consider at all times.
A lot of banks would levy a certain kind of foreclosure charge, if you opt for prepayment. However, this charge would vary from one bank to another. The charge can be a sort of flat fee or something to be calculated on the remaining interest amount. Therefore, it is crucial to calculate your foreclosure charge and learn about the actual savings you will enjoy when compared to the actual interest-based valuation of repayment, according to the actual tenure. There are also a few financial institutes that would never charge any kind of fee to prepay the loan. In fact, if your loan comes under the “floating rate” scheme, no foreclosure charge would be levied. Therefore, you must consider the options available carefully before approaching a financial institute.
Clearing out the debts at the earliest is always a great move. But, at times, it may not be the most financially advantageous option to consider. You must be calculative in your approach while trying to prepay the loans. You must understand the T-n-C of the loan agreement properly and then have a discussion, with the lender, regarding the prepayment. Before making any decision, you must consider the interest rates, penalty fees and the remaining loan tenure carefully.