Personal Loan Prepayment

Personal loan prepayment is a facility offered by financial institutions where you can pay your loan amount (outstanding and interest amount) before the tenure ends. However, personal loan banks might charge certain fees and also this is available only after you have paid a few EMIs. Before deciding on a lender you must check if the bank has a personal loan with prepayment option, if available then is it personal loans with no prepayment penalty or with penalty.

Personal Loan Part Prepayment: It is a facility under which you can prepay the loan partially after a few months' lock-in period. The charges levied by every lender is different. If you decide for part payment, then you can bring down your EMI.

Personal Loan Foreclosure: Loan foreclosure is a facility where you pay the personal loan amount in full before the end of the tenure. Few banks allow prepayment after 6 EMIs, whereas few banks allow foreclosure after 12 EMIs.

Pros of making prepayment of the personal loan are:

• Become Debt Free: The foremost advantage of repaying any loan is to become debt-free which is a significant relief for anyone. Personal loans can support you with a fund crunch, but they can put you in financial despair if the repayments are not appropriately handled. Therefore, use the surplus funds you have to repay your debt as early as possible. This not only makes you debt-free but also lightens the burden of paying EMI over the entire tenure of the loan.
• Save on the interest: It is advisable to make the prepayment in the early phase of the loan term if you have ample funds. However, it is essential to remember here that most lenders have some lock-in period. That means that within the lock-in period, you cannot repay your loan entirely or partially. However, you can make repayments after the lock-in term is over and save a decent amount of interest.
• Reduce EMI: If you make part prepayment of a loan then you can reduce your EMI. In such a case, interest rate will be charged on the current outstanding loan amount only. For example, if your total loan is ₹ 5,00,000 and interest rate is 11%, your EMI will be ₹ 10,871. But if you pay ₹ 2.50 Lakh after 12 months, your new EMI will be ₹ 6,571, you save a total of ₹ 4,300.

The drawbacks of making prepayment of Personal Loan are:

• Payment of foreclosure charges on personal loan: There is a caveat when you make early repayment of the loan, i.e. personal loan prepayment charges. It is an amount paid by the borrowers if they repay the loan before the loan term ends. Personal loan prepayment charges vary from nil to 5 percent of the outstanding balance or a fixed amount from one lender to another. Some lenders offer personal loan without prepayment penalty, and some may charge a flat penalty or fixed percentage of the loan amount. You will save significantly on prepayment if your lender does not charge a prepayment penalty.
• The depletion of a large sum of cash: Having liquidity in hands is useful for unfettered use. You can use it to satisfy your immediate fund needs or invest in a financial product that may get you better returns. It depends on your situation to determine how to spend your surplus funds – whether to pay your loan in advance or to use it in another place.

Note: Be sure you compare the different interest rates charged in the personal loan prepayment agreeing on a partial or full prepayment. Furthermore, select a personal loan deal that does not have a prepayment penalty or low charges and save as much as possible from prepaying the unpaid debt. Prepayment not only lowers the debt burden but also reduces the risk of defaulting on personal loans.

Bank	Part Prepayment Charges	Prepayment Charges
PNB	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
Corporation Bank	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
Andhra Bank	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
Union Bank of India	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
Indian Bank	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
Allahabad Bank	Allowed at 2.25%	Allowed at 2.25%
Bank of Maharashtra	Allowed After 1 Month at	Allowed After 1 Month at Nil prepayment charges
Bank of Baroda	Allowed After 1 Month at	Allowed After 1 Month at Nil
HDFC Bank	Allowed After 12 Months at 2-4%	Allowed After 12 Months at 2 - 4%
Kotak Bank	Allowed After 12 Months at Rs.500/- + GST Charges applicable on part payment. After lock-in period, Customer can pay 20% every year on Principal Outstanding	Allowed After 12 Months at Starting from Rs.999
Axis Bank	Allowed After 1 Month at 1-12 EMI-5%, 13-24 EMI-4%, 25-36 EMI-3% & Above 36 EMI-2%	Allowed After 1 Month at For Loan Amt Approved of 10 Lacs and above-- 0% FC charges after 12 EMIs if closure through OWN FUNDS,1-12 EMI-5%, 13-24 EMI-4%, 25-36 EMI-3% & Above 36 EMI-2%
Tata Capital	Allowed After 6 Months at Nil prepayment charges	Allowed After 6 Months at Rs. 1,000 to Rs. 5,000
Federal Bank	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
IDFC First Bank	Allowed After 3 Months at In case of Smart Personal Loan at Nil Charges	Allowed After 12 Months at 5% foreclosure charges. Can foreclose after 3 months in case of smart personal loan
Yes Bank	Allowed After 12 Months at 2% charges	Allowed After 12 Months at Up to 4%
Indian Overseas Bank	Allowed After 1 Month at	Allowed After 1 Month at Nil prepayment charges
Standard Chartered Bank	Allowed After 12 Months at 2%	Allowed After 1 Month at 5% charges before 12 months, 4% charges after 12 months
IDBI Bank	Allowed After 1 Month at 2% of the outstanding loan amount + applicable taxes	Allowed After 1 Month at Nil prepayment charges
Canara Bank	Allowed After 1 Month at	Allowed After 1 Month at Nil prepayment charges
Syndicate Bank	Allowed at Nil prepayment charges	Allowed at Nil prepayment charges
Bajaj Finserv	Allowed After 1 Month at 2%	Allowed After 1 Month at 4%
Axis Finance	Allowed After 3 Months at Nil Part-Payment Charges	Allowed After 6 Months at Nil Foreclosure Charges. 2% if foreclosure is done within the lock-in period
HDB Financial	Allowed After 6 Months at Nil Partpayment charges	Allowed After 6 Months at Nil foreclosure charges

If you want to prepay your personal loan, then you must follow the below-given steps: -

• Calculate the foreclosure charges or EMI after prepayment. Use MyLoanCare’s prepayment calculator.
• For foreclosure or prepayment, contact your nearest bank branch.
• Take all the required documents with you.
• You will have to meet the relationship manager at the branch who will calculate the fees or penalty.
• The process will begin once they receive penalty charges.

✅Is prepayment of personal loan a good idea?

It depends on your aim of prepayment. If you aim to save interest by making prepayment of the loan, it is useful to do it in the early phases or after the lock-in period. If you are prepaying the loan for improving your credit score, then prepayment will bring you in good books of credit bureaus. Be mindful of prepayment charges levied by the bank.

✅Can I pay a personal loan in advance?

You can pay it in advance, although it is not advisable. Sometimes, lenders ask borrowers to pay 1-2 EMIs in advance before the loan is approved. Suppose you taken a loan of ₹ 1 Lakh at 15% for two years or 24 months. The emi comes to ₹ 4,849. So, if you pay two EMIs in advance, the effective loan balance is reduced to ₹ 90,302. An EMI of ₹ 4,849 means that you have to pay more interest rate around 18% instead of 15%.

✅Does prepayment reduce EMI?

When you prepay your loan, your overall burden decreases, and you have two options in front of you. First, you have the option to reduce your tenure and second, you can get your EMI reduced. Which option suits your requirement depends on your convenience and financial situation.

✅Are there any prepayment charges on personal loans?

Not all banks charge prepayment penalty on a personal loan. Few banks have schemes of no prepayment penalty on a personal loan. However, few banks charge prepayment penalties, which may range upto 6% of the outstanding balance.

✅Can we do partial payment for personal loans?

Yes, partial payment for personal loans is possible with few lenders. It can be done when you have paid a few EMIs on time. Also, you might have to pay charges for that.

✅Which bank allows prepayment of a personal loan?

All banks and NBFCs allow prepayment facility on a personal loan. However, the part payment facility is allowed by a few banks only. To opt for a prepayment facility, you have to pay your loan EMIs on time for a lock-in period of 3 to 12 months. The lock-in period is different in every bank.