Loan Tips: The benefits of paying the loan on time are fewer and the disadvantages are more, know this thing..
This makes it quite expensive. However, if you do not want to pay high interest on a personal loan, then you also get the option of repaying the entire loan before the tenure ends, i.e. loan pre-payment.
If you choose the option of repaying a personal loan before time, then it has some advantages as well as some disadvantages. Here we are comparing both options and telling you when choosing the loan pre-payment option can be more beneficial for you.
Banks levy charges on loan pre-payment
If you choose the option of paying the loan before the tenure ends, then most banks and NBFCs charge pre-closure charges. Usually, pre-closure charges are taken at the rate of 1 to 5 percent of the outstanding loan amount. However, you have to pay charges on pre-paying a loan but you get rid of the interest charged on its outstanding EMI. In such a situation, if your outstanding amount is high then you get more benefit.
Effect of pre-payment on credit score
Pre-payment of a loan usually has a better effect on your credit score. But this situation may vary from one bank to another. If you want to improve your credit score, then timely payment of monthly EMIs for the entire tenure of the loan will help in improving your credit score. Apart from this, loan pre-closure also helps you get better credit in the future. Because any lender decides your loan repayment capacity based on your current liabilities. In such a situation, if your liabilities are less, then it will be easier to get a new loan.
When is it beneficial and when is it harmful?
Whether you will benefit or suffer loss from loan pre-payment depends on the time at which you choose the option of loan pre-payment. Because if you have repaid a large part of the loan, then you will not get much benefit from pre-payment. Because by this time you have also paid a lot of interest along with the loan EMI. Along with this, you also have to pay pre-closure charges. In such a situation, you can get the benefit of pre-payment within a short time of taking the loan, that is, as long as you pay less than half of its EMI.
Follow our Whatsapp Channel for latest update
