If you repay the bank loan on time, you will have to pay a prepayment penalty charge, know what is the loss to the banks from this.

Many times the borrower pays the loan amount at once. In such a situation, the banks charge a charge from the borrower, which is called a loan prepayment penalty charge. Let us know why banks charge this charge.

Nowadays many people are taking loan from the bank and fulfilling their needs. Some people are taking car loan to buy a car, while some people are taking home loan to buy a house. At the same time, some people are also taking personal loan from the bank to fulfill their personal needs. After taking a loan from the bank, the borrower has to repay his loan along with interest every month through EMI.

Many times the borrower prepays the loan to get rid of his loan, that is, the borrower pays the loan amount at once. In such a situation, the banks charge a charge from the borrower, which is called a loan prepayment penalty charge.

Why is loan prepayment penalty charge taken?

Banks charge loan prepayment penalty when a borrower pays off his loan before the loan tenure. In such a situation, banks suffer losses, due to which banks charge loan prepayment penalty.

Loss to banks due to loan prepayment

On prepaying the loan, the interest income of banks ends. If the borrower prepays the loan within the stipulated period, then the banks earn from interest. On the other hand, on prepaying the loan, the interest income of banks ends.

How much is the loan prepayment penalty charge?

The loan prepayment penalty charge varies according to the type of loan and the bank. This charge can be a percentage of the loan or it can be fixed. On the other hand, loan prepayment penalty charge is applicable only on fixed rate loans. This charge is not applicable on floating rate loans.